KUALA LUMPUR (Dec 1): Wah Seong Corp Bhd's shares price fell as much as 4.43% or 7 sen, despite reporting a stronger set of third quarter (3Q) results.

 

The stock had earlier dipped to a low of RM1.50 before settling at RM1.51 as of 11.55am.

 

The counter was trading between RM1.50 and RM1.59. Some 310, 500 shares were seen having been traded.

 

Last Friday, Wah Seong said its net profit for the third quarter ended Sept 30, 2014 (3Q14), jumped six folds to RM30.31 million from RM4.28 million last year, driven by the better performance from its oil and gas segment and its industrial trading and services segment.

 

Quarterly revenue was RM592.46 million, 42.63% higher compared to RM415.37 million in 3Q13.

 

Despite this, Kenanga Investment Bank Berhad (Kenanga) downgraded the stock to market perform from outperform and slashed its price to earnings ratio (PER) to 9 times from 14 times previously.

 

According to the firm, the rating was in lieu of the oil and gas sector de-rating on the back of weak crude oil prices.

 

"Given the cuts, we are downgrading our target price (TP) on the stock to RM1.54 based on FY15 eanings per share (EPS) of 17.2 sen," it said in a note to client today.

 

Kenanga said Wah Seong's current earnings drivers are an order book which is largely dominated by pipe-coating contracts at RM1.4 billion (from RM1.5 billion in Jun 14) and Penergy's contribution.

 

"Other catalysts will be the successful takeoff of the joint venture pipe-coating plant in Louisiana (JV with Insituform)," it added.

 

Kenanga, however raised Wah Seong's net profit for financial year 2014 by 16% as it ramp up the progress execution of the Polarled project this year and also increase pipe-coating GP margins by 2% to 28% from 26% earlier. 

 

"However, we are keeping our FY15 net profit forecasts intact for now given orderbook replenishment is still uncertain at this juncture," said Kenanga.

 

Meanwhile, Maybank IB Research downgrades the stock to sell from hold as on lack of orderbook visibility beyond financial year 2015 (FY15).

 

However, the firm raised its FY14 earnings forecast by 11% to reflect the stronger than expected 9M14 earnings result.

 

"Despite the earnings revision, we expect a sequentially seasonally weaker 4Q14 (down 44% q-o-q), on fewer operating days. Our FY15 and FY16 earnings forecasts are unchanged," Maybank IB said.

 

Maybank IB is concerned on the visibility of Wah Seong's order backlog beyond 2015 given the global capital expenditure (capex) reductions and weak oil price environment, which could slow down execution of projects under review.