All (s)hook up over Petra Energy- Wah Seong Corp Bhd

by **Cals** Fri 31 May 2013, 12:08

All (s)hook up over Petra Energy Wah Seong Corp Bhd
Business & Markets 2013
Written by CIMB Research
Friday, 31 May 2013 11:19

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Wah Seong Corp Bhd
(May 30, RM1.92)
Maintain outperform at RM1.96 with a revised target price of RM2.56 (from RM2.18): A delayed start to a project in Turkmenistan caused Wah Seong to slide into a small loss in the first quarter ended March of 2013 financial year (1QFY13), thus missing expectations. But it is already profitable in 2Q and is poised for a much stronger second half (2H) on PETRA ENERGY BHD []’s hook-up and commissioning (HUC) and marginal field jobs.

We slash our FY13 earnings per share (EPS) by 22.5% to account for the project delay but maintain our FY14/FY15 EPS. Our target price rises as we now apply a calendar year 2014 price-earnings ratio (PER) of 15.6 times ( against 13.3 times previously), which is a 30% discount to the PER of oil and gas big caps.

Wah Seong booked a net loss of RM1.6 million in 1Q due to the delayed commencement of the RM239 million Turkmenistan pipe coating project at the client’s request. Instead of the initial target in 1Q, the project will now kick off closer to year-end. Management says the company is already in the black in 2Q, thanks to early work on the RM611 million Statoil pipe coating job secured in February. The job is Wah Seong’s first in Norway.

On May 29, Wah Seong’s 26.9% associate Petra Energy announced that it has won a five-year contract from Petroliam Nasional Bhd for the provision of HUC works, which are valued at an estimated RM2.5 billion. Assuming a 20% net margin, Wah Seong is set to pocket RM27 million per year from the contract effective 3Q. Another source of associate income of around RM8 million to RM10 million per year will come from the Kapal, Banang and Meranti marginal oilfields starting from 4Q.

Wah Seong’s current operations are predominantly project based, making the company vulnerable to project schedule changes, such as the situation in Turkmenistan. However, given the long-term contributions from Petra’s HUC and marginal field contracts, Wah Seong’s earnings visibility should improve substantially from 2H onwards. — CIMB Research, May 30

This article first appeared in The Edge Financial Daily, on May 31, 2013.