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