Hot Stock Wah Seong rises as much as 3.57% on landing Nord Stream contract

by **Cals** Tue 12 Jul 2016, 20:51

Hot Stock

[size=28]Wah Seong rises as much as 3.57% on landing Nord Stream contract

By Sangeetha Amarthalingam / theedgemarkets.com | July 12, 2016 : 11:53 AM MYT

KUALA LUMPUR (July 12): Wah Seong Corp Bhd shares rose as much as 3.57% this morning, after Hong Leong IB Research said Wah Seong's pipe-coating and storing contract from Switzerland-based Nord Stream 2 AG is expected to boost its present RM5 billion orderbook significantly, with a core net profit forecast of 38.9% for its financial year ending Dec 31, 2017 (FY17).

In a note today, the research house said the award involved concrete weight coating and storing of approximately 2,400 km of pipes. The project is expected to commence in September 2016 and be completed by third quarter of 2019.

Financial impact is difficult to ascertain at this juncture, as the contract value is not disclosed for the time being, said Hong Leong IB.

Its analyst Lim Sin Kiat said the contract win was a `big positive’, but remained cautious on the orderbook replenishment rate in view of the low oil price and spending cut by exploration and production players.

“On the other hand, profit margins would be weaker for its oil and gas (O&G) pipe coating division, amid cost rebasing by its clients to weather the downturn,” he said.

He maintained a “sell” call on relatively resilient pipe coating demand, which was still an essential form of oilfield maintenance, despite low oil price.

“As a result of earnings upgrade, our target price is increased to 58 sen, from 49 sen previously, based on unchanged nine times FY17 price earnings ratio.

“While recent big win is a positive, margin compression is still a concern and its joint-ventures focused on O&G asset business would still be a drag,” he said.

The group reported a net loss of RM11.87 million for FY15 (its first net loss in five years), against a net profit of RM147.11 million for FY14, as a result of impairment losses on its O&G rental fleet.

Revenue fell 24.6% to RM1.83 billion, from RM2.44 billion in FY14, due to lack of projects, as a result of deferment of capex activities by O&G companies.

In May this year, the group said it expected FY16 to be a challenging year, as business would continue to be affected by volatile oil prices.

At 11.05 a.m., Wah Seong went up 2.5 sen to 72.5 sen, after paring gains at three sen, with 2.1 million shares exchanging hands, for a market capitalisation of RM560.28 million.
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