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Categories
| OSK upgrades Wah Seong’s earnings, target price |
| Business & Market 2009 | |||
| Written by Financial Daily | |||
| Thursday, 06 August 2009 12:11 | |||
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“We gather that this acquisition will make a minimal contribution to its FY09 net profit but expect full-year contribution for FY10 since PPSC has no more minority shareholder,” it said. It raised its FY10 net profit forecast by 7.8%. “We believe this subsidiary (PPSC) would be able to generate a higher profit contribution after factoring in the higher gross margin from deepwater pipe coating of 30% to 40% versus the 20% from conventional pipe coating. “We understand that PPSC is currently busy coating deepwater pipes for Petronas’ Gemusut Kakap and Turkmenistan projects. This plant is also the single-largest integrated pipe-coating plant in Asia,” it added. OSK Research also upped its target price for Wah Seong to RM2.78 (previously RM2.58) based on a price-earnings ratio (PER) of 12 times FY10 earnings. “The company is supported by a strong order book of over RM1.4 billion. We like the company for its market leadership in the provision of pipe-coating and corrosion protection in Malaysia,” it said. Wah Seong announced on Tuesday that its wholly owned indirect subsidiary, Wasco Coatings Ltd (WCL), has entered into a sale and purchase agreement (SPA) with Socotherm to acquire the remaining 32% stake in PPSC for €15.5 million (RM76.2 million) based on a PE multiple of 10.8 times. OSK Research said that excluding one-off items such as start-up cost and trial run, it estimated that PPSC’s profit could be between RM25 million and RM30 million, which may mean that the PE multiple paid by Wah Seong would be lower at 7.6 times to nine times. “This valuation is considered attractive if we compare it to our oil and gas industry average of 12 times,” it said. The local research house also noted that this recent acquisition is good timing for Wah Seong. “Given that Wah Seong has been shortlisted and is awaiting the award of 900km pipe coating jobs in Gorgon and Papua New Guinea, this would enable the company to reap 100% contribution from these jobs once they are secured. “Furthermore, we believe there would be more projects for deepwater pipe coating since oil price has stabilised at US$60/barrel (RM210) and now has touched above US$70/barrel,” it said. Wah Seong rose seven sen to RM2.14 yesterday. This article appeared in The Edge Financial Daily, August 6, 2009.
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