Results Note

25 November 2020

Wah Seong Corporation MARKET PERFORM ↑ Price : RM0.455 Recovery in 3QFY20 Target Price : RM0.430 ↔ By Steven Chan / [email protected]

Despite headline losses, WASEONG actually managed to Share Price Performance stage a turnaround in 3QFY20 on the core-level (adjusting for impairments, provisions and deferred tax), beating 1.50 expectations. Its order-book managed to grow 27% QoQ to 1.30

RM1.1b, while its tender-book stands at ~RM4b, which 1.10 includes a pipe coating job from Qatargas’ North Field Expansion, which the group is mildly confident of securing 0.90 by 1HFY21. Upgrade to MP, with unchanged TP of RM0.43, 0.70 given the increased possibility of earnings recovery. 0.50

9MFY20 deemed above expectations. 9MFY20 recorded core net loss 0.30 of RM68.8m (arrived after stripping-off non-core items e.g. impairments, provisions, deferred taxes, gains on disposals and net forex), deemed to have exceeded expectations against our full-year loss forecasts of KLCI 1,578.39 RM129m and consensus of RM112.8m. This is because its 3QFY20 YTD KLCI chg -0.7% results managed to turn in an unexpected core net profit of RM9.3m YTD stock price chg -61.9% (from core net loss of RM34.3m in the previous quarter), on recovery of jobs in its oil and gas segment. No dividends were announced, as Stock Information expected. Shariah Compliant Yes Bloomberg Ticker WSC MK Equity Recovery in 3QFY20. As aforementioned, 3QFY20 staged a Market Cap (RM m) 352.3 turnaround QoQ, as revenue managed a healthy recovery of 87%, Shares outstanding 774.3 mainly on the back of increased activities in its oil and gas segment. 52-week range (H) 1.45 However, on a YoY basis, core earnings were still down by 39%, given 52-week range (L) 0.38 slower jobs across all segments. Cumulatively, YTD-9MFY20 plunged 3-mth avg daily vol: 1,054,670 into losses (from core profit of RM47.6m in 9MFY19), similarly due to Free Float 55% slower job flows across all segments. Beta 1.4 Some hope for the future? Another positive takeaway from the quarter is that the group’s order-book has managed to increase to RM1,108.8m, Major Shareholders from RM870.2m in the previous quarter. This arose from some newer oil Wah Seong (M) Trading 32.5% and gas job wins in Africa and . Meanwhile, the group also has Tan Kim Yeow Sdn Bhd 7.0% a tender-book of ~RM4b. More notably, the tender-book includes a pipe Midvest Asia Sdn Bhd 5.4% coating job for Qatargas’ North Field Expansion project, which the group is mildly confident of securing. We guesstimate the project could be Summary Earnings Table worth up to ~USD200-300m for WASEONG, with the contract likely to FY Dec (RM m) 2019A 2020E 2021E be awarded in 1HFY21. Should this materialise, job execution is Revenue 2,514.9 1,200.0 1,900.0 expected to commence in 2HFY21, which may help bolster its FY21 EBIT 64.0 (18.0) 83.0 outlook despite the current difficult market conditions. PBT 5.6 (80.0) 21.0 Upgrade to MARKET PERFORM, with unchanged TP of RM0.43, Net Profit (NP) 24.1 (60.0) 15.8 pegged to 0.5x FY21E PBV at -1.5SD from its mean. Post-results, we Core Net Profit 70.3 (60.0) 15.8 narrowed our FY20E loss assumptions by 54%, in anticipation of Consensus (NP) (112.8) (43.1) another similarly profitable quarter in 4QFY20. Meanwhile, we reversed Earnings Revision (%) -53.5 >100 our FY21E earnings to a profit forecast of RM16m (from loss of Core EPS (sen) 9.1 -7.7 2.0 RM110m previously), in anticipation of the continued recovery of its oil CNP growth (%) 11.0 -185.4 -126.3 and gas segment. Our assumptions imply a further ~RM800m order- DPS (sen) 0.4 0.0 0.0 book replenishment in FY21. Our call is also subsequently upgraded to BV/Share (RM) 1.3 0.9 1.0 MARKET PERFORM, given the possibility of a recovery, coupled with Core PER (x) 4.9 -5.7 21.9 recent share price weakness. P/BV (x) 0.4 0.5 0.5 Gearing (x) 0.3 0.8 0.8 Risks to our call include: (i) failure of order-book replenishment, (ii) Dividend Yield (%) 0.9 0.0 0.0 slower-than-expected jobs execution, (iii) costs overrun, and (iv) further impairments or deterioration to its book value.

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Wah Seong Corporation Berhad Results Note

25 November 2020

Income Statement 3Q 2Q Q-o-Q 3Q Y-o-Y 9M 9M Y-o-Y FY20 FY20 FY19 FY20 FY19 Y/E : Dec (RM’mil)

Revenue 453.3 243.1 86.5% 644.5 -29.7% 1,023.2 2,085.7 -50.9% Cost of sales (385.2) (225.0) 71.2% (577.8) -33.3% (913.4) (1,852.3) -50.7% Gross profit 68.1 18.1 275.5% 66.7 2.0% 109.8 233.4 -53.0%

Other operating income 1.8 7.4 -75.9% 7.3 -75.5% 36.0 20.6 74.9% Selling and distribution (7.2) (7.9) -8.5% (9.6) -24.7% (23.7) (23.9) -1.1% expenses Administrative (283.5) (33.5) 747.3% (42.8) 562.8% (380.6) (130.9) 190.9% expenses Other (losses)/gain (1.2) 1.2 -193.9% 0.1 -1048.4% 0.4 0.1 410.1% Finance costs (10.3) (12.1) -15.5% (11.3) -9.0% (34.7) (39.5) -12.1% Associates & JV (3.1) (3.8) -16.1% 6.1 N.M. (16.3) 9.6 N.M. Profit before tax (235.4) (30.5) 671.6% 16.6 N.M. (309.2) 69.4 N.M.

Tax expense (24.4) (3.9) 525.7% (2.9) 735.1% (31.2) (22.6) 37.9% Non-controlling interest 3.9 4.8 -17.3% 1.6 144.0% 10.5 8.0 31.7% Net profit (255.8) (29.6) 763.2% 15.3 N.M. (329.9) 54.7 N.M. Core net profit 9.3 (34.3) N.M. 15.3 -39.2% (68.8) 47.6 N.M.

Gross margin 15.0% 7.5% 10.4% 10.7% 11.2% PBT margin N.M. N.M. 2.6% N.M. 3.3% Net margin N.M. N.M. 2.4% N.M. 2.6% Core net margin 2.0% N.M. 2.4% N.M. 2.3% Effective tax rate N.M. N.M. 17.6% N.M. 32.6%

Source: Company

Segment Breakdown 3Q 2Q Q-o-Q 3Q Y-o-Y 9M 9M Y-o-Y FY20 FY20 FY19 FY20 FY19 Y/E : Dec (RM’mil)

Oil & Gas Revenue 221.7 78.1 183.7% 360.8 -38.5% 416.3 1,317.6 -68.4% Operating Profit (232.9) (25.3) 820.7% 11.4 N.M. (281.9) 59.7 N.M. Operating Margin N.M. N.M. 3.2% N.M. 4.5%

Renewable Energy Revenue 98.6 83.9 17.5% 111.7 -11.7% 258.8 286.9 -9.8% Operating Profit 9.9 5.5 80.4% 4.7 108.8% 17.3 19.6 -11.8% Operating Margin 10.1% 6.6% 4.3% 6.7% 6.8%

Industrial Trading & Services Revenue 89.0 44.6 99.4% 113.6 -21.6% 212.8 326.9 -34.9% Operating Profit 2.3 (5.0) N.M. 2.1 5.4% (1.7) 2.2 N.M. Operating Margin 2.5% N.M. 1.9% N.M. 0.7%

Others Revenue 44.0 36.5 20.6% 58.5 -24.7% 135.3 154.3 -12.3% Operating Profit (2.1) 4.3 N.M. 0.5 -535.4% 0.3 1.4 -75.2% Operating Margin N.M. 11.8% 0.8% 0.2% 0.9%

Source: Company

PP7004/02/2013(031762) Page 2 of 4

Wah Seong Corporation Berhad Results Note

25 November 2020

Peer Comparison Net Last Revenue Core Earnings PER (x) - Core ROE Name Market Shariah Current PBV (x) Div.Yld. Target Rating Price Growth Growth Earnings (%) (%) Cap 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. Price (RM) Compliant FYE Hist. Hist. (RM'm) Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. (RM) BUMI ARMADA BHD 0.270 1,589.2 N 12/2020 13.0% 4.3% 40.3% 10.3% 5.6 4.0 3.6 0.5 0.4 11.5% 0.0% 0.210 UP

DAYANG ENTERPRISE HLDGS BHD 1.03 1,192.5 Y 12/2020 -31.2% 23.2% -71.2% 48.9% 5.1 17.6 11.8 0.8 0.7 4.2% 0.0% 1.20 OP

DIALOG GROUP BHD 3.70 20,865.5 Y 06/2021 29.4% 11.7% 7.8% 8.2% 34.7 32.1 29.7 5.0 4.5 14.9% 0.9% 4.35 OP - - MARINE AND HEAVY EN 0.395 632.0 Y 12/2020 -1.8% 29.8% N.A. N.A. N.A. 0.3 0.3 -4.0% 0.0% 0.380 OP 371.3% 144.8% MISC BHD 6.91 30,844.5 Y 12/2020 -4.1% 13.5% 24.0% 0.9% 19.2 15.5 15.3 0.9 0.9 5.6% 4.3% 8.90 OP

PANTECH GROUP HOLDINGS BHD 0.385 287.6 Y 02/2021 -41.9% 57.1% -47.6% 79.8% 8.7 16.7 9.3 0.5 0.5 2.8% 2.6% 0.310 UP

PETRONAS CHEMICALS GROUP BHD 6.80 54,400.0 Y 12/2020 -16.4% 10.4% -47.7% 61.6% 18.8 35.9 22.2 1.8 1.8 5.0% 1.4% 6.45 MP

PETRONAS DAGANGAN BHD 21.00 20,862.5 Y 12/2020 -41.6% 32.0% -60.1% 86.6% 25.4 63.6 34.1 3.5 3.5 5.5% 1.3% 16.00 UP

SAPURA ENERGY BHD 0.115 1,837.6 Y 01/2021 -11.4% 8.7% -112.1% -242.4% N.A. N.A. N.A. 0.2 0.2 -1.8% 0.0% 0.050 UP

SERBA DINAMIK HOLDINGS 1.70 5,726.1 Y 12/2020 15.0% 15.0% 9.6% 12.1% 11.5 10.5 9.4 2.4 1.8 19.5% 3.2% 2.70 OP

UZMA BHD 0.505 161.6 Y 06/2021 -6.8% 2.3% 681.5% 43.1% 59.9 7.7 5.4 0.4 0.4 4.7% 0.0% 0.570 MP

VELESTO ENERGY BHD 0.135 1,109.1 Y 12/2020 -15.8% 6.9% -222.8% -131.0% 34.7 N.A. N.A. 0.4 0.4 -1.4% 0.0% 0.130 UP

WAH SEONG CORP BHD 0.455 352.3 Y 12/2020 -52.3% 58.3% -185.3% -73.7% 5.0 N.A. 22.3 0.4 0.5 -7.1% 0.0% 0.430 MP

YINSON HOLDINGS BHD 5.16 5,495.8 Y 01/2021 44.8% 4.9% 121.4% 4.1% 25.6 11.6 11.1 3.4 2.7 26.4% 1.2% 5.50 OP

Simple Average -8.6% 19.9% -16.7% -16.9% 21.2 21.5 15.8 1.5 1.3 6.1% 1.1%

Source: Bloomberg, Kenanga Research

PP7004/02/2013(031762) Page 3 of 4

Wah Seong Corporation Berhad Results Note

25 November 2020

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

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