Retain outperform with target price (TP) of RM1.00
- Orderbook boost. Wah Seong’s current orderbook for 3QFY16, stands at RM3.6bn (June 2016: RM795m) comprising of 92% O&G contracts, 5% renewable energy (RE) and 3% industrial trading and services (ITS). The O&G orderbook worth RM3.4bn, comprises of projects such as Nord Stream 2, USD18.2m award for the Johan Sverdrup Export Pipeline Project (JoSEPP), USD41.2m subcontract award from Schneider Electric France SAS for a project in Kazakhstan, Shell E6 field, offshore Sarawak and Petronas Carigali F12 Kumang Cluster gas field development.
- Updates. The Nord Stream 2 pipes have been delivered to its respective plants in Finland end-September and to Germany in October, and is targeted to begin coating by January. The operations have been funded by an upfront payment by the client, based on the LOI signed. We remain concerned on the project’s major financing status which is still pending however. The Gulf of Mexico contract is targeted to begin coating in 4QFY16, having won a USD74m job from Shell. We understand that the main contributions from this project will kick-in 2017/18. Meanwhile the Group is aggressively bidding for other jobs in this region, with values ranging between USD20m to USD40m.
- Maintain Outperform with a TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen. The stock has limited downside as the Group’s performance continues to be affected by the oil price sentiment and not due to its execution capabilities. Thus upon recovery of the oil markets, we should see further positive reflections in its price levels.