Wah Seong Corp Bhd
(Dec 19, RM1.24)
Add with a targer price of RM2.65: Petronas Technology Ventures Sdn Bhd (PTVSB) has inked a five-year exclusive licensing agreement with Wah Seong for the marketing rights of the former’s home-grown product, Remcoat, which offers three-layer protection for pipelines aged over 20 years. Wah Seong will manufacture and market Remcoat to the global market.

Remcoat is currently being used in Petronas’ Garraf project in southern Iraq.

The collaboration is a positive development, although it is still early days for it to make a substantial impact on the bottom line. We understand that Wah Seong had supported PTVSB during the R&D process on Remcoat by allowing PTVSB to test the technology on Wah Seong’s pipelines, leading PTVSB to award the marketing rights to Wah Seong.

Wah Seong will manufacture Remcoat at its pipe-coating plant in Kuantan. With the RM232 million North Malay Basin contract completed in 2Q14, and the bulk of the RM627 million Polarled contract now being executed in Norway, the Kuantan facility will have the capacity to meet global demand. Remcoat could provide Wah Seong with a steady income in the long run, thus lending more stability to the bottom line that is currently driven by lumpy pipe-coating contracts. Wah Seong’s two other sources of steady income are its 26.9% stake in Petra Energy, and a 49:51 joint-venture (JV) which owns five vessels, with Alam Maritim.

“Accumulate” the stock. With the Polarled project going without a hitch, FY14 is set to be a record year for Wah Seong. We expect more exciting times in FY15-FY16 when annuity-like contributions from Petra and Alam JV flow through substantially. — CIMB Research, Dec 19

This article first appeared in The Edge Financial Daily, on December 22, 2014.