Top Story : Wah Seong – More Earnings Disappointment Likely In 3Q Underperform
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- We recently met up with management and came away with a bleaker outlook for the rest of FY10. Current oil and gas contract flows, especially for fabrication jobs, remain slow even though new development
projects appear to be on the table. We thus suspect 3QFY10 earnings will again be weak and potentially similar to 2Q results.
- The management had limited visibility in regards to timing of the Australian coal seam gas (CSG) projects awards. However they are slightly positive on their Nigerian tie-up with partner Pipe Coaters Nigeria (PCN) as the company has managed to secure some projects. While near-term contributions from Nigeria are minimal, we are nonetheless positive as it gives Wah Seong access to the West African region.
- We give Wah Seong the benefit of doubt and look to a better FY11. The Gorgon project should set a base for the company’s earnings, while present speculated E&P activities could materialise by 2011 and lead to better contract flows.
- We trim our FY10/FY11/FY12 net profit estimates again, this time by 17.9%/5.1%/3.9% respectively. Our cuts are extensive on FY10, as we expect it to be a very weak year.
- FY10 looks to be a significantly weak year and re-rating catalysts look like they will only emerge in FY11.
Fair value for the stock downgraded to RM1.79/share (from RM1.89/share) based on an unchanged 13x PER. We maintain our Underperform call on the stock
RHB Equity 360°(Wah Seong, Tan Chong; Technical: TMC Life Sciences)-09/09/2010
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