PETALING JAYA: Wah Seong Corp Bhd will turn the corner in the financial year ending Dec 31, 2022 (FY22) with the recent RM1.1bil line pipe thermal insulation job for the East African Crude Oil Pipeline (EACOP) project, according to Hong Leong Investment Bank (HLIB) Research.

       On Feb 22, 2022, Wah Seong said it had secured EACOP job, located between the town of Kabaale in Uganda and the port of Tanga in Tanzania.

       HLIB Research pointed out that this is the group’s single largest job win since Nord Stream 2 in 2016, and brings Wah Seong’s order book to RM2.7bil (from RM1.6bil).

       The research unit also noted that the group’s current tender book stands at RM4bil, after a conference call with Wah Seong management.

       HLIB Research explained that by taking the Nord Stream 2 job win as a case study, the pre-tax profit margin for the group’s pipe-coating business (oil and gas segment) ranges from 5.3% to 8.5% in FY17 and FY18, respectively.

       “Given a contract period of 30 months (2.5 years) and a pre-tax profit margin assumption of 7% flat over the entire contract tenure, we believe that the group will successfully turnaround into profitability in FY22 to FY23,” said the research house.

       It also noted that the rest of the order book of RM1.6bil will provide decent revenue and earnings visibility for the next 12 to 18 months.

       Also, Wah Seong has a strong pipe-coating job outlook amidst the Russia-Ukraine conflict and high gas prices over the next 12 to 18 months.

       HLIB Research said as Europe is looking for gas supply alternatives outside of Russia (to reduce reliance on a major single energy source), the region will have to dish out capital expenditure for crude oil and gas export pipelines from other nations to Europe.

       “Given that Wah Seong is one of the global duopoly (alongside Shawcor Ltd) in the pipe coating business, the group stands to be a major beneficiary of the strong pipe-coating job prospects,” said the research unit.

       It also noted that Giancarlo Maccagno, who is the group’s deputy managing director and also CEO of Wasco Energy Group which is Wah Seong’s oil and gas division, has bought over 300,000 shares post-announcement of the EACOP job win.

       HLIB Research maintained its FY22 estimates for Wah Seong but raised its FY23 earnings forecast by 15% to account for higher job win assumptions, accelerated S-curve project billing execution from the EACOP job – which the research unit believes would show a bumper in both revenue and earnings in its second year.

       HLIB Research upgraded Wah Seong’s stock to “buy” (from “hold”) with a higher target price of RM1.17 per share (from 78 sen previously) based on 12 times FY23 estimated earnings per share.