Wah Seong bags AP LNG’s pipe-coating project

Wah Seong Corp
(July 4, RM2.38)
Maintain buy at RM2.39 with target price RM3.10: We are positive on WSC’s clinching of the Australia Pacific LNG Pty Ltd (AP LNG) pipe-coating project and anticipate more of these to follow over the next few months. We are maintaining our forecasts. WSC remains a “buy” with a RM3.10 target price (14 times 2012 earnings per share), which provides a 30% upside. WSC is a proxy play to Petroliam Nasional Bhd’s (Petronas) domestic development programmes and worldwide gas, leveraging on Australia’s multiple LNG project sanctions.

WSC has secured a contract from AP LNG to coat over 700km of pipes for the Asia Pacific LNG project in Australia. The pipe-coating project, valued at US$45 million (RM135 million), will commence by 4Q11 and take about 12 months to complete.

We are positive on this contract flow, in line with our expectations and reflective of the increasing order book visibility worldwide. While this project is dwarfed by the Gorgon project in value (US$163 million), we still expect the AP LNG project to contribute a decent RM27 million to RM33 million to WSC’s pre-tax profit for FY11/12, based on a 20% to 24% pretax margin assumption.

We rate WSC highly in clinching part or all of Chevron’s Wheatstone, Petronas’ Kebabangan and Santos-Petronas’ Gladstone pipe-coating projects totalling approximately US$350 million, results of which should be made known by end-2011 or early 2012.

We are keeping our forecasts unchanged, for we have incorporated the AP LNG pipe-coating project into our forecasts. We forecast WSC to consistently recognise RM620 million to RM660 million in revenue annually from pipe-coating jobs in 2011 to 2013. WSC’s proposal to split its oil and gas outfit (Wasco Energy) from the group remains a work-in-progress. Its plan to list Wasco by January 2012 remains on track. — Maybank IB Research, July 4