PETALING JAYA: Wah Seong Corp Bhd’s recently proposed land transactions are expected to increase the company’s net debt (including time deposits) to RM551.3mil from RM512.4mil as well as its gearing to 0.94 times from 0.87 times.
Nevertheless, the group is expected to remain on track to return to profitability in the financial year ending Dec 31, 2022 (FY22), with the recent line pipe thermal insulation job for the East African Crude Oil Pipeline project.
The contract, worth about RM1.1bil, is the group’s single largest job win since Nord Stream 2 back in 2016.
With this job win, Wah Seong’s order book more than doubled to RM2.7bil, Hong Leong Investment (HLIB) Research said.
Wah Seong recently announced its plan to dispose of a leasehold industrial land in George Town, Pulau Pinang, measuring 35,200 sq meters, with a double storey office building erected thereon for a total consideration of RM26.5mil.
The company also said it had proposed to acquire MMA Offshore Holdings Pte Ltd and MMA Offshore Investments Pte Ltd – which are investment holding companies and its only notable assets are three plots of lands in Batam, Indonesia, with a total land size of 181,000 sq meters for a total consideration of RM65.4mil.
The group has guided that it will not be doing any equity fund raising in the near term, HLIB Research noted.
“Currently, the premises at the Batam yard is occupied by PT Wasco Engineering Indonesia, an indirect subsidiary of Wah Seong.
“Based on a short conversation with Wah Seong’s management regarding the subject matter, we gather that the lease expense amounts to around RM2mil annually,” the research house said.
“Overall, we are neutral on these developments. While the group’s balance sheet deteriorated slightly, we note that there will be some earnings enhancement from the lease expense savings of RM2mil annually.
“To be conservative, we will not be making any changes to our FY22-FY23 earnings forecasts,” it added.
HLIB research maintained its “buy” call on Wah Seong, with an unchanged target price of RM1.17 based on 12 times FY23 earnings per share, which is at a slight premium of its five-year average price-earnings ratio of 9.5 times to reflect the positive job win prospects and earnings turnaround over the next 12-18 months.