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Wednesday, January 4, 2017

Brokers Report: WAH SEONG - Additional Income Stream



Maintain OUTPERFORM with target price (TP) of RM1.00




Wah Seong has announced that its wholly-owned subsidiary, Syn Tai Hung Trading Sdn Bhd (STHT) has signed a JV agreement with Lesso Home Service Holdings Limited (LESSO) to carry out an integrated sales and service center business to provide quality imported products and home furnishing goods, facilitated by LESSO on-line e-commerce platform. We understand that this strategy supports STHT’s distribution network in Malaysia, while leveraging on LESSOs’ extensive supply chain network in China to expand its business of distribution of building materials, architectural products, and home furnishing goods. We cannot ascertain earnings contributions from this JV as yet, pending further information. Our Outperform view on Wah Seong is maintained based on its current fundamental strengths, with a TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen.

  • LESSO is an indirect wholly-owned subsidiary of China Lesso Group Holdings Limited, involved in the business of manufacturing and trading of building materials and interior decoration products. Through the intended JV company Lesso Home Syn Tai Hung Sdn Bhd, Wah Seong via STHT will own 49% of the JV.
  • The rationale. The JV will pave the way for Wah Seong to expand its business of distribution of building materials, architectural products, and home furnishing goods by capitalizing on the extensive supply chain network of LESSO in China and the established distribution network of STHT in Malaysia. Management has expressed that the expansion is also in line with the “One Belt One Road” initiative of China and the growing Chinese investments in Malaysia.

  • Retain Outperform. We continue to recommend Wah Seong 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 should be boosted by the higher, stable oil price levels which is expected to encourage new projects, coupled with its execution capabilities supported by its current RM3.6bn orderbook as at 3QFY16.



Source: PublicInvest Research - 04 January 2017


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