Company Focus Wah Seong Corp
Refer to important disclosures at the end of this report Bloomberg: WSC MK | Reuters: WAHE.KL AllianceDBS Research, Malaysia Equity 15 Nov 2017
Promised growth in volatile sector BUY Set for rebound after 2016 kitchen sinking amid (Initiating Coverage) improving industry dynamics Last Traded Price ( 14 Nov 2017): RM1.08 (KLCI : 1,733.61) Earnings visibility until FY19 with 22% CAGR, thanks Price Target 12-mth: RM1.35 (25% upside) to contract win for the Nord Stream 2 project Shariah Compliant: Yes Over-leveraged balance sheet on the mend via non- Potential Catalyst: Additional contract wins as the market recovers core assets divestment Initiate with BUY call and TP of RM1.35 Analyst Inani Rozidin +603 2604 3905 [email protected] Initiate coverage on Wah Seong Corp (WSC) with BUY call.
Our TP of RM1.35 is based on 12x fully-diluted FY18F EPS, which is the sector’s weighted average PE for small-cap players. After two years in the doldrums amid collapse in crude Price Relative oil prices and dwindling order book, earnings is poised to rebound from FY17. The turnaround was set in motion following the award of a EUR600m (RM3bn) pipe-coating job for the Nord Stream 2 (NS2) project. On the back of a total orderbook of RM3.5bn, we forecast an EPS CAGR of 22% for FY17-FY19F. With more stable crude oil prices, demand for pipe-coating and engineering services for the oil & gas sector should improve going forward as we pencil in a modest annual replenishment assumption of RM200m. In addition to improved earnings outlook, WSC is also looking to pare down its over-leveraged balance sheet (1.07x net gearing as of 30 Forecasts and Valuation FY Dec (RMm) 2016A 2017F 2018F 2019F Jun) by disposing of non-core assets, including its loss-making 49%-owned plantation in Congo. Revenue 1,277 1,888 2,166 2,266
EBITDA (111) 202 229 247 Pre-tax Profit (20.9) 83.7 111 127 Where we differ. Earnings recognition of the NS2 project will Net Profit (23.3) 66.4 87.2 99.6 accelerate from 2H17 onwards as coating activities have Net Pft (Pre Ex.) (221) 66.4 87.2 99.6 progressed to double shifts during the period. The progressive EPS (sen) (3.0) 8.60 11.3 12.9 earnings delivery and consensus earnings (below our EPS Pre Ex. (sen) (28.6) 8.60 11.3 12.9 estimates) upgrades will act as share price catalysts. EPS Gth (%) nm nm 31 14 EPS Gth Pre Ex (%) (2,437) (130) 31 14 Further potential catalyst. Amid oil price recovery and eventual Diluted EPS (sen) (3.0) 8.60 11.3 12.9 return of upstream activities, a stronger than expected Net DPS (sen) 0.50 2.58 3.38 3.86 orderbook replenishment will further re-rate WSC. BV Per Share (sen) 100 106 114 123 Furthermore, progress in its non-core assets divestment PE (X) nm 12.6 9.6 8.4 exercise will also be a boost. PE Pre Ex. (X) nm 12.6 9.6 8.4
P/Cash Flow (X) 6.4 nm 11.3 5.8 Key Risks to Our View: EV/EBITDA (X) nm 8.3 6.7 6.0 Net Div Yield (%) 0.5 2.4 3.1 3.6 Potential further impairments. WSC has carried out a massive P/Book Value (X) 1.1 1.0 0.9 0.9 kitchen-sinking exercise in FY16. However, WSC still carries Net Debt/Equity (X) 1.1 0.8 0.6 0.5 considerable assets in its books, particularly its loss-making ROAE (%) (2.5) 8.3 10.2 10.8 49%-owned palm oil plantation assets in Congo worth c.USD5m (RM21m). Further deterioration and/or delay in Consensus EPS (sen): 8.40 10.8 12.3 divestment will lead to further impairment. Other Broker Recs: B: 2 S: 1 H: 2 At A Glance ICB Industry : Oil & Gas Issued Capital (m shrs) 773 ICB Sector: Oil Equipment; Services & Dist Mkt. Cap (RMm/US$m) 835 / 199 Principal Business: WSC is a globally integrated energy Major Shareholders (%) infrastructure group. Its Oil&Gas division provides specialized pipe Dato’ Seri Robert Tan 40.2 coating services and EPCC specialities. Meanwhile, its industrial Chan Cheu Leong 7.8 services division is involved in renewable energy and infrastructure EPF 5.0 materials. Free Float (%) 39.4 Source of all data on this page: Company, AllianceDBS, Bloomberg 3m Avg. Daily Val (US$m) 0.20 Finance L.P.
Refer to important disclosures at the end of this report ed: CK / BC Company Focus
Wah Seong Corp
Table of Contents
SWOT Analysis...... 3 Highlight ...... 4 Company Background ...... 5 Key management team ...... 6 Corporate structure ...... 7 Competitive Strengths ...... 8 Earnings Turnaround ...... 9 Key risks ...... 13 Valuation ...... 14 Appendix ...... 15 Share price sensitivity ...... 15 Key assumptions ...... 16 Segmental breakdown ...... 16 Income statement ...... 17 Quarterly/interim income statement ...... 18 Balance sheet ...... 19 Cash flow statement ...... 20
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Wah Seong Corp
SWOT Analysis
Strengths Weakness Niche speciality in offshore and deep-water pipe coating Potential further impairment services Unable to secure financing for new projects Widespread facilities in 18 countries across the globe Lower-than-expected margins Exclusive rights to market, sell, supply and apply REMCOAT™, a PETRONAS proprietary product for pipeline coating
Opportunities Threats Strong footing in Europe Competition from other pipe coating players Presence in bright spot markets through JV and subsidiaries Weaker-than-expected macroeconomic environment may Recovery in capex spending by the oil majors dampen customer demand Downturn of O&G sector
Source: AllianceDBS
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Highlight
Profile Rationale WSC is a globally integrated energy infrastructure group. Its 2HFY17 turnaround. FY17 will start on a clean slate oil & gas division provides specialised pipe coating services following a massive kitchen-sinking exercise in 4Q16. and EPCC specialities. Meanwhile, its industrial services Earnings will be underpinned by existing orderbook of division is involved in renewable energy and infrastructure RM3.5bn, and in particular the Nord Stream 2 (NS2) project. materials. We note that WSC’s agreement with NS2 is unique as the project will be carried out in fixed margins plus bonus arrangements. We have not included any performance bonus and ascribed low operating margins comparable to onshore works (c.5%) in our forecast for the NS2 project. We believe there is potential re-rating if margins come in above expectations.
Strong positioning as global pipe coating company as oil market begins to recover. WSC has built a reputable track record over the years. The NS2, Johan Sverdrup, Appomatox and other smaller projects are expected to have a positive effect on the group’s performance in FY17-FY19. This attests to WSC’s capabilities as it is able to secure future earnings for the next 3 years, albeit in a challenging environment. As oil prices recover and stabilise in the longer term, we expect upstream activities to return which would lead to more demand for WSC’s speciality. We believe WSC will be in the running to win additional awards as the market recovers further.
Healthy stream of future global pipeline projects. According to Pipeline & Gas Journal, there is 61,783km of planned pipeline projects that is up for bidding in the near term. Majority of the works are in North America (43%) followed by Asia Pacific (25%).
Valuation Risks Initiate coverage: BUY, TP RM1.35. We initiate coverage on Potential further impairments. WSC has carried out a WSC with a BUY recommendation and TP of RM 1.35. Our massive kitchen-sinking exercise in FY16. However, WSC still TP is based on 12x fully-diluted FY18F EPS, which is the carries considerable assets from its 49%-owned palm oil sector’s weighted average PE for small- cap players. We plantation assets in Congo in its books worth c.USD5m forecast an EPS CAGR of 22% from FY17-FY19F for WSC, (RM21m). The plantation operation was still incurring losses underpinned by its strong orderbook. This stock also provides in 1H17. In the event of further deterioration in operating an expected dividend yield of c.3.6% in FY18F. Management environment, further impairment may have to be made. has guided for a dividend payout of 30%. Unable to finance new projects. We noted that WSC faced obstacles when it tried to secure financing for the NS2 project. Moving forward, WSC is seeking to lower its gearing level and generate cashflow for its working capital by disposing of non-core assets. This will put WSC on a better footing to undertake more projects in the near term.
Lower-than-expected margins. After a kitchen sinking exercise in FY16, we expect WSC’s net margin to improve to 3.5% in FY17 from -1.8% in FY16. Going forward, lower- than-expected margins could dampen the momentum of WSC’s earnings growth in comparison to its top-line growth. A -/+ 0.1% shift in O&G operating margins will affect earnings by -/+ 1.3%, resulting in our fair value to increase/decrease by 1.2% respectively.
Source: AllianceDBS
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Company Background
Reverse takeover. Wah Seong Corporation Bhd (WSC) was Exhibit 3: Historical operating profit trend formed pursuant to the debt and equity restructuring scheme of Perdana Industri Holdings Bhd (PIHB), which resulted in Segment FY11 FY12 FY13 FY14 FY15 FY16 WSC becoming the holding company of PIHB and assuming O&G 143 47 41 187 39 -119 PIHB’s listing status in 2002. Prior to this, PIHB has been listed Renewable since 1991. PIHB’s restructuring scheme had included the energy 30 43 65 62 56 36 Industrial & acquisition of Wah Seong Industrial Holdings Sdn Bhd (WSIH) 15 7 3 7 2 -11 and its group of companies. The exercise consolidated the trading companies into a group principally involved in provision of Plantation 0 0 -16 -20 -17 -57 specialised pipe coating services for the O&G industry, Others 6 7 1 -18 -29 -7 manufacturing of steel pipes for the O&G and infrastructure sectors, provision of industrial engineering services and Total 194 104 93 218 51 -158 manufacturing and distribution of building materials. Source: Company, AllianceDBS
Focusing on core business. WSC has three main business O&G. WSC’s core O&G business is undertaken by its unit segments which are oil & gas (O&G), renewable energy and Wasco Energy which focuses on providing pipe coating industrial & trading services. In the past, WSC diversified into solutions for the oil and gas industries. Wasco offers an entire plantations but it has mostly impaired this loss-making range of anti-corrosion, weight and flow assurance coatings segment. Moving forward, WSC plans to focus on its core from its many facilities worldwide. Wasco’s pipe coating business, namely the O&G segment. business has presence in 14 locations globally. The division has established a niche in the international market that Exhibit 1: Historical revenue trend contributed about 93% of current secured contracts valued RM'm RM'm at RM3.26bn. Apart from the pipe coating services; Wasco 3,000 139.6 160.0 131.5 140.0 also provides engineering, fabrication, energy and field 2,500 120.0 services for the O&G industry. Refer to Wasco Energy’s 2,439 1,889 1,952 100.0 website for further details. 2,000 1,779 1,840 80.0 54.8 49.3 1,500 1,277 60.0 Renewable energy. This division provides process and power 22.7 40.0 generation solutions to various industries across the world. 1,000 20.0 Headquartered in Shah Alam, Malaysia, its integrated - 500 (23.3) manufacturing complex is accredited with international (20.0) quality certifications, thus ensuring that its products and 0 (40.0) FY11 FY12 FY13 FY14 FY15 FY16 services are of high quality. WSC is also supported by a wide Revenue (LHS) Core Net Profit (RHS) network of regional sales and service offices across key markets to efficiently meet the needs and demands of its Source: Company, AllianceDBS clients and partners. Its renewable energy segment comprises Exhibit 2: Historical revenue weightage trend the process equipment unit, agro engineering unit as well as steam and energy solutions unit. The renewable energy 4% 5% 8% 5% 3% 5% division has a combined order book of RM176m comprising 24% 29% numerous small projects, of which 70% relates to the palm 35% 36% 34% 39% oil industry and 30% from other industries including power 14% generation, petrochemical and the O&G industry. 20% 12% 15% 19% 23% Industrial & trading services. WSC is a leading supplier for and service provider to regional infrastructure and construction 49% 57% 48% sectors. The core activities of the division are the distribution 43% 39% 33% of building materials and industrial equipment primarily in Malaysia, while also having a presence in fast-growing
FY11 FY12 FY13 FY14 FY15 FY16 regional economies such as Myanmar and Cambodia. It also O&G Renewable energy Industrial & trading services Others manufactures mild steel (MS) spiral welded steel pipes and high-density polyethylene (HDPE) pipes and ancillary Source: Company, AllianceDBS products, both of which cater to infrastructure applications such as piling and foundation as well as conveyance and storage of water and fluids.
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Plantation. WSC had ventured into the palm oil industry Myanmar investment. The group’s business ventures in through its 51% stake in Atama Plantation SARL (Atama) for Myanmar began more than 15 years ago. It operates under a USD25m (RM106m).The venture was granted a 60-year 50:50 joint venture company with Boustead Holdings Berhad. agriculture concession by the Ministry of Agriculture and It is involved in property investment, and trading of Animal Breeding of Congo to develop 470,000ha of land into pharmaceutical products, building and construction materials. oil palm plantations. The programme was envisaged to be In Myanmar, WSC is keen on business opportunities in carried out in 10 phases over a 15-year period from 2013. synergistic sectors such as engineering, O&G services, and The group initially planned to invest RM2.3bn over 10 years agri-business. to develop an agro-industrial complex. However, the plantation segment was not making any progress due to Experienced management team. The management of WSC is setbacks in the preliminary planting stages. As such, this led by Chan Cheu Leong and Giancarlo Maccagno who have division has not realised any revenue but incurred total over 35 years of experience with in-depth knowledge and a operating losses of RM110m from FY13-FY16. The group had wide network of contacts in the O&G industry. Refer to diluted its stake to 49% and impaired RM68m of its Exhibit 3 for the profile of the key management team investments in FY16.
Exhibit 4: Key management team
Name and Designation Age Profile Dato’ Seri Robert Tan Chung 65 Appointed to the Board in 2002 Meng Studied business administration in the United Kingdom Non-Independent, Non-Executive Group Managing Director of IGB Corporation Berhad, Managing Director Chairman of IGB REIT Management Sdn Bhd (the manager of IGB Real Estate Investment Trust), an Executive Director of Goldis Berhad, a Director of Tan & Tan Developments Berhad and a Trustee of Yayasan Tan Kim Yeow Major shareholder of the group with 40.2% stake Chan Cheu Leong 67 Appointed to the Board in 2002 Managing Director/ Group CEO Bachelor of Science (Hon) Degree in Engineering Production from University of Birmingham Masters in Business Administration from the London Business School Has no family relationship with any member of the key management team Major shareholder of the group with 7.8% stake Giancarlo Maccagno 54 Appointed as Director in 2004 Deputy Managing Director/ CEO Bachelor in Business Administration from Tecnico Commerciale Maddalena O&G Division Adria (RO) Italy Director of Petra Energy Berhad Has no family relationship with any member of the key management team Has a 2.1% stake in the company Bernard Yeap 63 Appointed as Head of Finance in 2002 Head, Finance/ Director, Special Fellowship with the Chartered Association of Certified Accountants, UK Projects Member of both the Malaysian Institute of Certified Public Accountants and the Malaysian Institute of Accountants. Has no family relationship with any member of the key management team Ramanathan A/L P.R. Singaram 50 Appointed as Chief Financial Officer, O&G Division in 2013 Chief Financial Officer, O&G Member of Association of Chartered Certified Accountants (ACCA), UK Division Fellow of Association of Chartered Certified Accountants, United Kingdom and a member of Malaysian Institute of Accountants. Has no family relationship with any member of the key management team
Source: Company
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Exhibit 5: Corporate structure
Source: Company
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Competitive Strengths High barrier of entry. WSC is involved in pipe coating services for offshore and deep-water explorations, which is a niche An edge in Malaysia. WSC has benefited from pipe coating area that has high barriers of entry. This is due to the high works on PETRONAS’s RAPID project at Pengerang, a major precision and detailed engineering required in coatings for project has spurred growth of a number of local O&G players. specific functions in difficult environments. In offshore and A licensing collaboration was signed between PETRONAS and deep-water explorations, higher-end coating is required as WSC in Dec 2014, whereby, WSC was given exclusive rights there is a need for highly flexible coatings with an extensive to market, sell, supply and apply REMCOAT ™, a PETRONAS bending of pipes and insulation materials in coatings to proprietary product for pipeline coating. Looking ahead, we provide resistance against the effects of high pressure and believe WSC will dominate any pipe coating works for major high temperature environments (HPHT). projects in Malaysia. Complete services portfolio for its O&G division – engineering Global presence and clientele. WSC’s operational facilities services. WSC’s engineering services encompasses span 18 countries and its head office is located in Kuala engineering design, procurement, packaging, general Lumpur, Malaysia. Facilities in other countries include fabrication, installation, and commissioning services to a wide Canada, the US, Norway, Netherlands, Italy, Finland, range of clients from the O&G, petrochemical and power Germany, Congo, Myanmar, the UAE, India, Singapore, generation industries. It is headquartered in Singapore with Indonesia, Cambodia, China and Australia. A staff force of the main fabrication facility in Batam, Indonesia. The facility c.2,500 is needed to support WSC’s operations. The has the capacity to undertake the fabrication of 10,000 tons widespread operational centres allow WSC to tap into various per year. As an extension of its engineering services business, markets and grow its customer base. In addition to Malaysia, WSC provides specialised field services professionals to O&G, its clientele also encompasses South East Asia, Europe, India, and power generation industries to carry out works related to China, Australia, Canada, Middle East, East Asia, Africa and operations and maintenance (O&M), installation, Latin America. commissioning and supply of OEM spare parts. WSC offers this service from its operations in Dubai, the UAE and Exhibit 6: Operational centres Melbourne, Australia.
Complete services portfolio for its O&G division –energy services. WSC’s energy services provide support and consultancy services to the exploration and production segments of the O&G industry. The business is focused on corrosion protection for critical assets. Its core business is in the manufacturing of sacrificial anode from its own foundry in Kuantan, Malaysia.
Natural hedging from currency fluctuations. Parts, Source: Company consumables and services (PCS) form a major portion of the group’s cost of sales at.c.72% in FY16. Out of the total PCS Specialisation in pipe coating services in O&G division. WSC’s costs in FY16, 88% came from parts and consumables, and O&G unit Wasco Energy provides services for onshore, 12% from personnel costs. We understand that WSC has offshore and deep-water pipe coating for the O&G industry. transactional currency exposures arising from sales and It offers the entire range of anti-corrosion, heat insulation, purchases that are mainly denominated in USD. The group weight and flow assurance coatings. Wasco’s pipe coating keeps a natural hedge by maintaining receivables and business has presence in 14 locations globally. These facilities payables in matching foreign currencies. WSC also uses are also strategically located either inside ports or with close forward currency contracts to minimise its exposure to proximity to shipping ports, which makes it convenient and currency fluctuations. accessible for the transportation of line pipes. We understand that apart from Wasco, only one other company in the world, Bredero Shaw, specialises in offshore and deep-water pipe coating. Apart from pipe coating solutions, WSC is also the pioneer manufacturer of large diameter spiral steel pipes in Malaysia. Although its footprint is only in Malaysia for this business, its pipes are American Petroleum Institute (API) certified and are exported to project sites within the region.
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Earnings turnaround Earnings turnaround from FY17. After two years of revenue and earnings contraction amid a downturn in the O&G Exhibit 7: Estimated revenue/earnings trend sector, WSC is poised to turnaround in FY17. With massive RM'm RM'm impairment exercise already undertaken in FY16, we forecast 3,000 200.0 WSC’s revenue to grow at a 3-year CAGR of 21% and its 2,439 2,500 2,266 core earnings to recover from core loss of RM23.3m in FY16 2,166 150.0 to RM99.6m net profit in FY19F. This is underpinned by its 2,000 139.6 1,840 1,888 100.0 strong orderbook of RM3.5bn, which comprises mainly of 1,500 99.6 NS2 project (RM3bn). 1,277 87.2
66.4 50.0 1,000 O&G division underpins earnings turnaround. As oil prices 22.7 - 500 recover and stabilise, we expect upstream activities to return which would lead to more demand for WSC’s speciality. WSC 0 (23.3) (50.0) has realigned itself to focus on its core business of pipe- FY14 FY15 FY16 FY17F FY18F FY19F coating and engineering services for the O&G industry. We Revenue (LHS) Core Net Profit (RHS) forecast this segment to remain WSC’s main earnings Source: Company, AllianceDBS contributor with a 3-year revenue CAGR of 51% and its
operating profit to recover from loss of RM118.8m in FY16 to
Exhibit 8: Estimated revenue weightage trend RM82.7m in FY19F. This is supported by its current outstanding O&G orderbook of c.RM3.26bn (93% of total 5% 3% 5% orderbook) and expected annual replenishment of RM200m. 26.5% 23.1% 22.1% 24% 29% Its O&G tenderbook remains strong at RM4.0bn (80% total 39% tenderbook of RM5.0bn). 12.7% 13.2% 14% 13.2% 20% Strong positioning as global pipe coating company as oil 23% market begins to recover. WSC has built a reputable track record over the years. The pipe coating business unit of WSC 64.2% 57% 60.3% 64.7% was awarded the Appomatox sub-contract worth USD74m 48% 33% (RM313m) by Shell for the provision of insulation coating protection for deep water, offshore insulation project in the Gulf of Mexico. In Norway, the division also secured an FY14 FY15 FY16 FY17F FY18F FY19F additional contract from Statoil worth USD62m (RM261m) O&G Renewable energy Industrial & trading services Others for the Johan Sverdrup project which would be executed in Source: Company, AllianceDBS its Kuantan facility. The NS2, Johan Sverdrup, Appomatox and other smaller projects are expected to have a positive effect on the group’s performance in FY17-FY19. This attests Exhibit 9: Total orderbook – RM3.5bn to WSC’s capabilities as it is able to secure future earnings for Industrial & the next 3 years, albeit in a challenging environment. As trading such, we believe WSC will be in the running to win additional Renewable services awards as the market recovers further. energy 2% 5% Exhibit 10: Project awards
Region Value (RM) Project details Europe 3bn Nord Stream 2 (NS2) project Gulf of Oil and Gas 313m Appomatox project by Shell 93% Mexico North Sea 261m Johan Sverdrup project by Statoil Pipe coating project by Schneider Kazakhstan 167m Electric France SAS Kazakhstan 104m Pipe coating project by Siemens SAS Source: Company Source: Company
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Nord Stream 2. In Sep 2016, Wasco was awarded a contract Exhibit 11: Global pipeline projects and WSC’s presence worth EUR600m (RM3bn) to provide concrete weight Ongoing Planned WSC on-going Region coating, pipe storage and logistics for the Nord Stream 2 projects projects projects 24,589km 26,610km (NS2) project. The objective of the NS2 project is to develop a North America N/A new pipeline to supply Russian natural gas through the Baltic (33.6%) (43.1%) 16,230km 15,696km Asia Pacific N/A Sea to the European Union market. 200,000 pipes are (22.2%) (25.4%) 7,118km 7,715km needed to build the 2,400km pipeline. NS2 will pass through Middle East N/A (9.7%) (12.5%) the territorial waters of the Exclusive Economic Zones (EEZs) South & Central 2,931km 4,601km N/A of Russia, Finland, Sweden, Denmark, and Germany. Through America (4.0%) (7.4%) 2,762km 3,650km the international permitting process, NS2 has received Africa N/A (3.8%) (5.9%) permits to construct and operate the pipeline from each of 19,454km 3,510km Europe 2,839 km these countries. Other neighbouring Baltic states – Poland, (26.6%) (5.7%) 73,083km 61,783km Total 2,839 km Lithuania, Latvia and Estonia – were also consulted. Please (100%) (100%) refer to Nord Stream 2 website for further details. Source: Pipeline & Gas Journal
Wasco’s pipe coating works are executed in Kotka, Finland Decisive positioning in bright spots regions to grow market and Mukran, Germany with the project completion expected penetration. North America accounts for 34% of ongoing by 3Q19. For the Kotka plant, a prequalification test (PQT) projects and 43% of planned pipeline projects, but several was done in Feb 2017 and commercial production started on major on-going projects have been long delayed which 27 March 2017. The plant has reached full production at means Wasco still has the opportunity to bid for jobs. Notable end-3Q17, and it has managed to double its initial projects include the TransCanada’s Energy East Pipeline production with two shifts per day. Meanwhile, the coating (4,600km), TransCanada’s Keystone XL Pipeline (1,897km), plant in Mukran completed its PQT in July and commercial Dakota Access Pipeline (1,886km), Enbridge Pipeline production started in Aug 2017. Full production with two (1,661km) and Atlantic Coast Pipeline (830km). shifts per day is expected by 4Q17. We expect the NS2 project to be WSC’s main earnings driver until FY19. One bright spot for future North America construction may be Mexico. P&GJ predicts a 75% increase in demand for We note that Wasco’s agreement with NS2 is unique as the natural gas over the next 15 years as Mexico’s economy project will be carried out in fixed margins plus bonus continues growing and expands its natural gas-fired power arrangements. Due to challenges faced by Wasco in securing generation capacity. TransCanada has a footprint of assets conventional working capital financing, the project is fully and projects in development exceeding USD5bn (RM21bn), funded by NS2 given the strong financial standing of its all underpinned by a 25-year agreement with Mexico’s state shareholder, Gazprom. To date, NS2 has advanced EUR54.7m power company. Major pipeline construction project delays (RM272m) to Wasco for working capital. Moreover, Wasco are also being seen in another bright spot region, which is has acquired two facilities in Finland and Germany with the Canada. These include TransCanada’s Energy East project and acquisition also funded by the client. We gather that there Enbridge Energy’s Northern Gateway project. will not be any finance cost charged on the fund provided. However, Wasco is required to be transparent on its costing In August 2016, Wasco’s pipeline services division completed and a fixed profit margin is agreed to ensure the profitability the commissioning of its new facilities in Canada under its of the project. Additionally, if Wasco is able to meet certain 49% JV called Evraz Wasco. Wasco also has Bayou Wasco, KPIs, it will enjoy additional performance bonus at the end of which is a 49% JV in the Gulf of Mexico. Wasco is currently the project. We have not included any performance bonus involved in several gas development projects and is building a and ascribed low operating margins comparable to onshore strong market position in the Gulf of Mexico and Canada. works (c.5%) in our forecast.
Healthy stream of future global pipeline projects. According to Pipeline & Gas Journal (P&GJ), there is 61,783km of planned pipeline projects that is up for bidding in the near term. Majority of the works are in North America (43%) followed by Asia Pacific (25%). Taking into account WSC’s track record and global presence, we believe WSC has high potential for further contract wins in the future.
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Exhibit 12: Strong presence in Europe As stated earlier, Wasco has acquired two coating facilities in Kotka, Finland and Mukran, Germany for the NS2 project. Apart from these, Wasco also has an existing facility in Norway to cater for the North Sea market. Its main job is for the USD18.23m (RM73.87m) contract by Statoil Petroleum AS Norway for the provision of pipe shipping to a port at west coast of Norway and subsequent offloading, with activity started in 2Q17 and to be completed in 1Q18. These strategic facilities will place Wasco in the forefront for future jobs within the North Sea and Baltic Sea region. In addition, Wasco also has presence in other parts in Europe through subsidiaries in Netherlands and Italy.
Stable renewable energy segment to support earnings. The renewable energy division is the second largest earnings contributor to WSC, which is expected to make up 34% of FY17 operating profit. We forecast the renewable energy segment to be fairly resilient over FY17-FY19 albeit challenging market conditions, supported by current Source: Company, AllianceDBS orderbook size of RM176m and annual replenishment
Exhibit 13: Estimated geographical revenue trend assumption of RM200m. We expect revenue and operating profit to grow by 2 year CAGR of 10% from FY17-FY19. A 11% 8% 7% 6% slower than expected capex spending by the palm oil industry 17% 16% 5% 4% 4% 5% 4% 2% 2% 7% 8% will adversely affect order replenishment and margin compression. To mitigate this risk, WSC has taken a more 22% 21% 17% proactive role at improving efficiencies, and increases 7% 37% 53% 51% 11% 15% marketing efforts in order to secure new orders.
Potential recovery in the industrial, trading & services 58% 48% 46% segment. We forecast the segment to return to the black 42% 30% 34% from FY17 onwards albeit challenging market conditions .The group aims to expand its footprint geographically to diversify its markets to fast growing economies in South East Asia. FY14 FY15 FY16 FY17F FY18F FY19F WSC has similarly expanded its distribution network for Malaysia Europe South East Asia Australia Others infrastructure and building materials to East Malaysia in Source: Company, AllianceDBS anticipation of major construction and infrastructure
developments in Sabah and Sarawak. Strong market presence Europe. Currently, Wasco is involved
in c.15% of on-going pipeline projects in Europe. Europe’s Additional cashflow from disposing non-core assets. WSC revenue contribution grew from 3% in FY13 to 15% in FY15 announced in Jul 17 that it was selling two industrial assets at RM274m, mainly from jobs around the Baltic Sea. This comprising of lands and buildings in Gebeng, Pahang to Axis translates to a 2-year revenue CAGR of 135% for FY13-FY15. REIT for RM155m, translating into a one-off gain of RM98m. Contributions fell to RM86m in FY16 but we expect it to pick Post disposal, WSC will then leaseback the assets from Axis up from FY17 onwards. We expect to see improvement in the REIT for 15 years; this is expected to be completed by Jan group’s earnings as the majority of the work in Europe is for 2018. Out of the total proceeds, RM50m would be utilised offshore and deep-water pipe-coating services which typically for working capital while the remaining RM105m to repay carry higher margins compared to onshore works. We borrowings, bringing down its net gearing ratio from 1.07x forecast revenue from Europe to grow at a 3-year CAGR of as of 30 Jun 2017 to 0.9x. Both interest cost and depreciation 138% in FY16-FY19F. We expect Europe to remain WSC’s charge savings from the disposal would amount to main revenue contributor in FY17-FY19F, mainly supported c.RM8m/annum. This would help to partially offset the by the NS2 project. Beyond that, we believe Europe will still leasing costs for the assets sold, resulting in a net increase in remain a key market for WSC with its growth prospects being expenses of RM4m/annum for WSC, assuming an initial reinforced by: 1) stronger market reputation and penetration, agreed leasing rate of RM12m per annum. We understand and 2) higher demand for pipe-coating and engineering that management intends to dispose of additional non-core services. assets (including its Congo plantation) to generate cashflow
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Company Focus
Wah Seong Corp
for its working capital. This will allow WSC to undertake Exhibit 15: Estimated operating margins trend more projects in the near term. 25.0% 19.9% Exhibit 14: Potential asset disposals 20.0% 15.0% 14.3% 13.6% 14.5% 15.0% 12.4% NBV as at Title/Location Description 8.7% FY16 (RM) 10.0% 5.0% 5.2% 5.5% Daerah Klang, Selangor Industrial land 66.6m 5.0% 1.8% 5.7% Kota Kinabalu, Sabah Industrial land 60.1m 0.0% 3.5% 4.0% 4.4% 1.2% FY14 FY15 FY16 FY17F FY18F FY19F Singapore Office buildings 53.7m -5.0% -1.8% Daerah Kuala Langat -11.9% Agriculture land 45.3m -10.0% Selangor Seberang Perai Tengah -15.0% Industrial land 44.5m Pulau Pinang Gross Margin (%) EBIT Margin (%) Core Net Margin (%)
Kuantan, Pahang Industrial land 24.4m Source: Company, AllianceDBS Kawasan Perindustrian Factory building 15.5m Bangi Selangor Persistently low crude oil prices. O&G capital expenditure is Bandar Kuala Lumpur Commercial 10.6m largely dependent on the crude oil price outlook, which will Congo Plantation 21m have a huge bearing on the total value of contracts in WSC’s Source: Company pipeline. A prolonged period of depressed oil prices or a further deterioration in market conditions could see global oil
Key Risks majors continue to hold back their capex investment, thus leading to an extended delay of major oil projects.
Potential further impairments. WSC has carried out a massive Political risk in operational countries. As WSC’s overseas kitchen-sinking exercise in FY16 by providing for the businesses are subject to political conditions in the countries following impairments: (i) 49% stake in Atama, its plantation where it has operations, any adverse political developments in ops in Congo (RM68m), (ii) its compressors (RM36m) (iii) its these countries may affect the group’s earnings prospects. Norway ops (RM48m), (iv) assets in associate, Petra Energy The risks are more pronounced in certain markets, such as (RM21m), (v) ageing PPI pipe manufacturing facilities in Russia, the Middle East and Indonesia. Gaining sufficient Seberang Prai (RM13m), and (vi) inventories at its Cambodian understanding of the countries’ regulatory and political risks plant (RM5m). However, WSC still carries considerable assets is thus a prerequisite for expanding its operations to such from its 49%-owned palm oil plantation assets in Congo’s countries. palm in its books worth c.USD5m (RM21m). The plantation
operation was still incurring losses in 1H17. In the event of Vulnerable to challenges faced by its investments. WSC has a further deterioration in operating environment, further 49% stake in Alam-PE Holdings (Alam-PE), an O&G company impairment may have to be made. that operates five offshore support vessels (OSV), of which
four vessels are on long-term charters. In addition, WSC also Unable to finance new projects. Oil & gas companies are has a 26.9% stake in Petra Energy Berhad (Petra), a Bursa facing difficulties in securing funding, no thanks to the Malaysia listed O&G company with extensive exposure to and sector’s challenging operating conditions and high default experience in brownfield operations, particularly in the area rates for existing financing facilities. We note that WSC faced of topside major maintenance/hook-up construction and difficulties when it tried to secure financing for the NS2 commissioning work. We expect better contribution from its project. Moving forward, WSC is seeking to divest non-core associate, Petra and joint venture Alam-PE, which can offset assets to lower its gearing level and generate cashflow for its the losses of its newly established JV in India. Although WSC working capital. This will put WSC in a better position to stands to benefit from growth for its investments, it is also undertake more projects going forward. susceptible to losses faced as these investments may be
deployed in a volatile environment. Lower-than-expected margins. After a kitchen sinking
exercise in FY16, we expect WSC’s core net margin to
improve to 3.5% in FY17 from -1.8% in FY16. Going
forward, lower-than-expected margins could dampen the
momentum of WSC’s earnings growth in comparison to its
top-line growth. A -/+ 0.1% shift in O&G operating margins
will affect earnings by -/+ 1.3%, resulting in our fair value to increase/decrease by 1.2% respectively.
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Wah Seong Corp
Valuation
Initiate coverage: BUY and TP of RM1.35. We initiate coverage on WSC with a BUY recommendation and TP of RM 1.35. Our TP is based on 12x fully-diluted FY18F EPS, which is the sector’s weighted average PE for small-cap players. We forecast an EPS CAGR of 22% from FY17-FY19F for WSC, underpinned by its strong orderbook. This stock also provides an expected dividend yield of c.3.6% in FY18F. Management has guided for a dividend payout of 30%.
Exhibit 16: Peer Comparison (as at 14 Nov 2017)
EPS (FD) Growth Price/ Dividend Net Corr to Corr to P/E (FD) ROE (YoY) BVPS Yield Gearing Brent USDMYR Target Current Mkt Cap Call CY2018 CY2019 CY2018 CY2019 CY2018 CY2018 CY2018 CY2018 Price (LC) Price (LC) (USD m) Dialog Group HOLD 1.95 2.26 2,982.9 5% 11% 36x 32x 4.1x 1% 11% nm 79% 65% Sapura Energy HOLD 1.65 1.60 2,250.2 167% 46% 25x 17x 0.6x 0% 2% 1.2x 80% 76% Bumi Armada BUY 0.95 0.73 1,011.4 41% 13% 9x 8x 0.8x 3% 9% 1.8x 96% 91% Serba Dinamik BUY 2.90 2.63 826.1 26% 23% 10x 8x 2.7x 3% 27% 0.5x - - Wah Seong Corp* BUY 1.35 0.94 171.6 31% 14% 11x 10x 1.1x 3% 9% 1.1x 92% 92% Pantech Group* BUY 0.85 0.69 120.1 17% 8% 9x 9x 0.8x 5% 9% 0.1x 85% 85% Yinson 3.95 1,027.4 8% 1% 13x 13x 1.6x 2% 12% 1.1x 33% 17% MMHE 0.91 340.4 2100% 50% 46x 30x 0.6x 0% 0% nm 94% 92% Coastal Contracts* 1.46 181.5 -4% 0% 18x 16x 0.4x 0% 3% 0.0x 55% 55% Dayang* 0.70 155.7 138% 58% 9x 6x 0.6x 2% 4% 1.1x 76% 75% KNM Group* 0.27 132.5 467% 124% 16x 7x 0.2x 0% 0% 0.4x 47% 56% Uzma* 1.55 116.3 17% 13% 10x 9x 0.9x 0% 8% 1.1x 56% 46% Deleum* 0.98 91.3 28% 15% 10x 9x 1.3x 0% 10% nm 70% 61% Petra Energy* 0.96 75.2 357% 20% 8x 6x 0.5x 5% 6% 0.3x 74% 72%
Total / weighted avg 9,482.7 137% 23% 23x 19x 2.0x 1% 9% 0.7x 69% 61% Total small cap 1,044.2 116% 32% 12x 9x 0.7x 2% 6% 0.5x 69% 68%
Sources: AllianceDBS, Bloomberg Finance L.P *small-cap players
Exhibit 17: Historical PE Band Chart Exhibit 18: Historical PB Band Chart (exclude loss period in FY16)
PE(x) PB(x) 50.0 1.8 +2Std: 1.68 +2Std: 41.3 40.0 1.6
1.4 +1Std: 1.41 30.0 +1Std: 30.9 1.2 20.0 Avg: 20.4 Avg: 1.14 1.0 10.0 -1Std: 9.9 0.8 -1Std: 0.87
0.0 -2Std: -0.7 0.6 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 -2Std: 0.6 -10.0 0.4 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Sources: AllianceDBS, Bloomberg Finance L.P Sources: AllianceDBS, Bloomberg Finance L.P (as at 14 Nov 2017) (as at 14 Nov 2017)
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Company Focus
Wah Seong Corp
Appendix 1: WSC’s share price returns vs FBMKLCI Index Index Value RM 2000.00 2.50 1900.00 2.00 1800.00 1700.00 1.50 1600.00 1500.00 1.00 Share price decline 1400.00 reflects drop in oil prices 0.50 1300.00 1200.00 0.00
FBMKLCI Index (LHS) Share Price (RHS)
Sources: AllianceDBS, Bloomberg Finance L.P
WSC’s share price vs Brent crude oil price Remarks USD/bbl RM We found a strong correlation of 140.20 2.10 0.9x between WSC's share price 120.20 1.90 and Brent crude oil price 100.20 1.70 movements. Looking ahead, we 1.50 think Brent crude oil price could 80.20 1.30 average between US$60/bbl and 60.20 1.10 US$65/bbl in 2018. 40.20 0.90 20.20 0.70 We believe the next re-rating 0.20 0.50 catalyst will be improvements in Brent crude oil price beyond the
US$60/bbl mark.
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Sep-17 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
May-14 May-13 May-15 May-16 May-17 May-12 Source: Company, AllianceDBS Brent USD/bbl (LHS) Share Price (RHS)
Source: Company, AllianceDBS
WSC’s share price vs MYRUSD currency Remarks USD/MYR RM We found a strong correlation of 0.36 2.10 0.9x between WSC's share price 0.34 1.90 and MYRUSD currency 0.32 1.70 movements. The group keeps a 0.30 1.50 natural hedge by maintaining 0.28 1.30 receivables and payables in 0.26 1.10 matching foreign currencies. WSC 0.24 0.90 also uses forward currency 0.22 0.70 contracts to minimise exposure to 0.20 0.50 currency fluctuations.
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Sep-17 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
May-16 May-13 May-14 May-15 May-17 May-12 MYRUSD Currency (LHS) Share Price (RHS) Source: Company, AllianceDBS Source: Company, AllianceDBS
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Company Focus
Wah Seong Corp
Key Assumptions Sensitivity Analysis FY Dec 2014A 2015A 2016A 2017F 2018F 2019F 2017 O&G operating Net Profit +/- O&G orderbook replenishment (RM'm) 790 668 3,360 200 200 200 margins +/- 0.1% 1.3% Renewable energy Renewable energy orderbook Net Profit +/- 343 346 200 200 200 200 operating margins replenishment (RM'm) 0.2% +/- 0.1% O&G operating margins (%) 13.6 4.41 (28.1) 5.0 5.3 5.6 Renewable energy operating margins (%) 18.1 15.1 12.2 12.0 12.0 12.0
Segmental Breakdown FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Revenues (RMm) Oil and Gas 1,384 881 423 1,138 1,391 1,466
Renewable energy 342 369 293 250 275 300
Industrial & trading services 594 534 496 500 500 500 Total 2,439 1,840 1,277 1,888 2,166 2,266
Segmental profit (RMm) Oil and Gas 188 38.9 (119) 56.7 73.9 82.7 Renewable energy 62.1 55.7 35.5 30.0 33.0 36.0
Industrial & trading services 6.61 2.45 (10.7) 1.25 2.50 3.75 Total 218 51.3 (158) 88.0 109 122
Segmental profit Margins (%) Oil and Gas 13.5 4.4 (28.1) 5.0 5.3 5.6 Renewable energy 18.1 15.1 12.1 12.0 12.0 12.0 Industrial & trading services 1.1 0.5 (2.2) 0.3 0.5 0.8 Total 9.0 2.8 (12.4) 4.7 5.1 5.4
Source: Company, AllianceDBS
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Wah Seong Corp
Income Statement (RMm) Margins Trend FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Revenue 2,439 1,840 1,277 1,888 2,166 2,266 Cost of Goods Sold (1,953) (1,577) (1,118) (1,632) (1,853) (1,928) Gross Profit 486 263 158 257 313 338 Other Opng (Exp)/Inc (274) (229) (310) (162) (200) (213) Operating Profit 212 33.8 (151) 94.6 113 125 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.66 19.0 (46.0) 17.7 23.4 26.6
Net Interest (Exp)/Inc (13.9) (17.1) (21.0) (28.6) (25.5) (24.1) Exceptional Gain/(Loss) 14.0 13.3 197 0.0 0.0 0.0
Pre-tax Profit 212 49.0 (20.9) 83.7 111 127 Tax (51.4) (47.6) (8.7) (20.1) (26.6) (30.5) Minority Interest (21.5) 21.3 6.25 2.86 2.92 2.97 Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0 Net Profit 140 22.7 (23.3) 66.4 87.2 99.6 Net Profit before Except. 126 9.45 (221) 66.4 87.2 99.6 EBITDA 290 143 (111) 202 229 247 Growth Revenue Gth (%) 37.0 (24.6) (30.6) 47.9 14.7 4.6 EBITDA Gth (%) 115.1 (50.6) nm nm 13.5 7.9 Opg Profit Gth (%) 172.5 (84.0) (547.7) (162.5) 19.4 10.3 Net Profit Gth (Pre-ex) 288.5 (92.5) nm nm 31.2 14.2 (%) Margins & Ratio Gross Margins (%) 19.9 14.3 12.4 13.6 14.4 14.9 Opg Profit Margin (%) 8.7 1.8 (11.9) 5.0 5.2 5.5 Net Profit Margin (%) 5.7 1.2 (1.8) 3.5 4.0 4.4 ROAE (%) 13.6 2.1 (2.5) 8.3 10.2 10.8 ROA (%) 5.2 0.8 (0.8) 2.4 2.8 3.0 ROCE (%) 5.2 (0.3) (10.3) 1.7 2.6 3.0 Div Payout Ratio (%) 32.7 102.2 N/A 30.0 30.0 30.0 Net Interest Cover (x) 15.3 2.0 (7.2) 3.3 4.4 5.2
Source: Company, AllianceDBS
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Company Focus
Wah Seong Corp
Quarterly / Interim Income Statement (RMm) Revenue Trend FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017
Revenue 341 327 278 330 317 446 Cost of Goods Sold (291) (293) (243) (292) (272) (361) Gross Profit 49.5 34.8 35.5 38.5 44.3 84.8 Other Oper. (Exp)/Inc (35.3) (27.6) (42.4) (195) (37.0) (62.4) Operating Profit 14.2 7.15 (6.9) (157) 7.30 22.4 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (5.2) (3.8) (8.8) (28.3) 6.99 1.72 Net Interest (Exp)/Inc (6.7) (6.6) (7.3) (9.4) (9.7) (10.7) Exceptional Gain/(Loss) (4.7) (4.3) 10.2 196 (1.1) 2.07
Pre-tax Profit (2.3) (7.6) (12.8) 1.67 3.48 15.5 Tax (4.5) (2.3) (3.5) 1.61 (1.3) (3.9) Minority Interest 4.55 (1.4) 1.03 2.08 6.20 (2.6) Net Profit (2.3) (11.2) (15.2) 5.37 8.37 9.01 Net profit bef Except. 2.36 (6.9) (25.4) (191) 9.47 6.94 EBITDA 29.1 23.2 5.98 (160) 35.0 46.0
Growth Revenue Gth (%) (23.9) (3.9) (15.1) 18.8 (4.1) 40.8 EBITDA Gth (%) 84.9 (20.4) (74.2) nm nm 31.3 Opg Profit Gth (%) (198.2) (49.6) (196.9) 2,163.7 (104.7) 206.8 Net Profit Gth (Pre-ex) (107.5) (392.9) 267.9 650.4 (105.0) (26.7) (%) Margins Gross Margins (%) 14.5 10.6 12.7 11.7 14.0 19.0 Opg Profit Margins (%) 4.2 2.2 (2.5) (47.5) 2.3 5.0 Net Profit Margins (%) (0.7) (3.4) (5.5) 1.6 2.6 2.0
Source: Company, AllianceDBS
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Company Focus
Wah Seong Corp
Balance Sheet (RMm) Asset Breakdown FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 774 802 782 749 725 698 Invts in Associates & JVs 164 330 215 378 392 408 Other LT Assets 542 470 466 (1.6) (3.2) (4.7) Cash & ST Invts 245 321 315 389 629 677 Inventory 205 247 208 333 378 393 Debtors 885 720 507 908 1,041 1,089 Other Current Assets 87.2 109 112 112 112 112
Total Assets 2,901 2,999 2,605 2,866 3,273 3,372
ST Debt 879 906 1,232 783 888 889
Creditor 571 480 352 607 689 717
Other Current Liab 32.0 43.1 36.9 57.0 63.5 67.4 LT Debt 136 316 0.0 350 350 350 Other LT Liabilities 14.0 28.3 117 157 312 312 Shareholder’s Equity 1,075 1,122 776 822 883 953 Minority Interests 193 104 91.9 89.1 86.1 83.2
Total Cap. & Liab. 2,901 2,999 2,605 2,866 3,273 3,372
Non-Cash Wkg. Capital 573 553 438 688 777 809 Net Cash/(Debt) (771) (902) (916) (744) (609) (561) Debtors Turn (avg days) 110.5 159.2 175.4 136.7 164.2 171.6 Creditors Turn (avg days) 100.9 129.1 147.2 113.5 134.4 140.1 Inventory Turn (avg days) 39.9 55.5 80.6 64.0 73.6 76.8
Asset Turnover (x) 0.9 0.6 0.5 0.7 0.7 0.7 Current Ratio (x) 1.0 1.0 0.7 1.2 1.3 1.4 Quick Ratio (x) 0.8 0.7 0.5 0.9 1.0 1.1 Net Debt/Equity (X) 0.6 0.7 1.1 0.8 0.6 0.5 Net Debt/Equity ex MI (X) 0.7 0.8 1.2 0.9 0.7 0.6 Capex to Debt (%) 12.8 9.0 11.4 4.9 5.5 5.4
Source: Company, AllianceDBS
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Company Focus
Wah Seong Corp
Cash Flow Statement (RMm) Capital Expenditure FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Pre-Tax Profit 198 35.7 (218) 83.7 111 127 Dep. & Amort. 77.9 90.5 86.9 89.5 92.8 96.0 Tax Paid (51.4) (47.6) (8.7) 0.0 (20.1) (26.6) Assoc. & JV Inc/(loss) (7.6) (11.5) 53.9 (8.6) (13.8) (16.3) Chg in Wkg.Cap. (210) 26.8 132 (270) (96.1) (35.5) Other Operating CF 32.9 78.7 85.3 0.0 0.0 0.0
Net Operating CF 40.6 173 131 (105) 73.7 145 Capital Exp.(net) (130) (111) (140) (55.0) (67.5) (67.0) Other Invts.(net) 0.0 0.0 0.0 0.0 155 0.0
Invts in Assoc. & JV (106) (10.0) (53.4) 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0
Other Investing CF (35.4) 13.9 (109) 352 0.0 0.0
Net Investing CF (272) (107) (303) 297 87.5 (67.0) Div Paid (45.7) (23.2) (3.9) (19.9) (26.2) (29.9) Chg in Gross Debt 135 (3.1) 18.0 (98.4) 105 0.74
Capital Issues 0.0 0.0 0.0 0.0 0.0 0.0 Other Financing CF 1.89 9.62 61.9 0.0 0.0 0.0
Net Financing CF 91.3 (16.7) 76.0 (118) 78.9 (29.1) Currency Adjustments 3.72 26.5 2.70 0.0 0.0 0.0 Chg in Cash (136) 75.7 (92.4) 73.5 240 48.6 Opg CFPS (sen) 32.4 18.9 (0.1) 21.3 22.0 23.3 Free CFPS (sen) (11.6) 8.03 (1.1) (20.8) 0.80 10.1
Source: Company, AllianceDBS
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Company Focus
Wah Seong Corp
DISCLOSURE
Stock rating definitions
STRONG BUY - > 20% total return over the next 3 months, with identifiable share price catalysts within this time frame BUY - > 15% total return over the next 12 months for small caps, >10% for large caps HOLD - -10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps FULLY VALUED - negative total return > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame
Commonly used abbreviations
Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date
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Company Focus
Wah Seong Corp
DISCLAIMER
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In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to make their own independent evaluation of the information contained herein.
Wong Ming Tek, Executive Director
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