Friday 29 Mar 2024
By
main news image

KUALA LUMPUR (March 22): The oil and gas (O&G) industry is "in a good shape going forward", with signs of recovery emerging after several years of prolonged downturn, said Wah Seong Corp Bhd group managing director and chief executive officer Chan Cheu Leong.

On that note, Chan is optimistic that Wah Seong, which is primarily involved in pipeline services, is in a good position to ride the upcycle that is set to take place in the next one or two years.

"Definitely we are [in the position to benefit from the industry upswing]," Chan told reporters at the sidelines of a signing ceremony here today.

"As any industry that has gone through prolonged rationalisation and downturn, those [in the O&G sector] that are able to sustain through this challenging period will be there to benefit from the upcycle when the industry recovers — which is happening now," said Chan.

Very soon, Chan said, players and oil majors will find that the industry has been severely under-invested. "They will have to turn on the tap on capex in the near future," he added.

"I think we will probably see a lot of investments in one or two years from now."

Although certain O&G companies have emerged on analysts' radar as potential beneficiaries of the O&G industry upcycle, they have largely remained conservative on Wah Seong, citing dwindling orderbook for its O&G segment and margin challenges for its other segments.

The group posted its first quarterly net loss in two years in the fourth quarter ended Dec 31, 2018, due to lower contribution from O&G and renewable energy while its industrial trading and services business sank into losses.

Analyst reports underlined that its tenderbook stood at RM5.9 billion at end-2018, with sizeable contract wins expected to occur only in the second half of 2019 — meaning earnings contribution will only come in later.

The group has three 'hold' calls and two 'sell' calls, with target prices ranging between 62 sen and RM1, according to Bloomberg.

Wah Seong's share price has recovered slightly from its all-time low of 59.5 sen in December last year, with the shares trading at 77 sen apiece at press time.

Is Wah Seong trading at a bargain? According to Bloomberg, the group is currently trading at 8-9 times its FY19-20 price-to-earnings multiple.

Petronas, in its Petronas Activity Outlook 2019-2021, mentioned that both frame agreements for its linepipes and flexible pipes are expiring in the near future, with some analysts expecting the group to be a beneficiary for new contracts, at least for rigid linepipes.

Meanwhile, Chan said the group remains committed to the O&G sector, where 70% of the group's RM1.1 billion order book comes from.

"I think we are in the right sector," Chan said, referring to Wah Seong's inclination towards development of gas pipelines and systems.

"[The gas segment] will always be our core [business]," he said. "I think the oil and gas industry is in a good shape going forward."

      Print
      Text Size
      Share