Wah Seong Corp Bhd
(Aug 19, RM1.25)
Maintain hold with an unchanged target price (TP) of RM1.39: Wah Seong Corp announced that it had secured a subcontract worth approximately RM189 million for the supply and delivery of coated steel pipes for the Pengerang deepwater petroleum terminal project in Johor.

The subcontract is expected to be completed by the third quarter of financial year 2016 (FY16). The contract win will increase its oil and gas (O&G) order book from RM710 million to RM900 million (about 1.5 times of FY15 O&G revenue). This will be part of and in line with our assumption on order book replenishment.

We are positive on the contract award as this will help to replenish depleting O&G order book amidst the weak oil price environment. The latest tender book is about RM5 billion with 80% related to O&G jobs. In view of the low oil price and spending cut by exploration and production  player, we are cautious about the order book replenishment rate.

Potential exercise to spin off non-O&G asset to unlock value might not materialise in the near term given the current market sentiment. The plantation division is still in a gestation period and will remain in the red over the next few years before it breaks even.

This is mainly due to initial start-up costs. The company plans to plant another 7,500ha in 2014 to 2016. We maintain a “hold” call with an unchanged TP of RM1.39 based on unchanged nine times FY16 price-earnings. — Hong Leong IB Research, Aug 19

This article first appeared in digitaledge Daily, on August 20, 2015.