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| Maybank IB: Time to take profit on Wah Seong |
| Written by Financial Daily | |||
| Tuesday, 02 June 2009 10:51 | |||
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“With earnings growth in doubt, the 82% year-to-date (YTD) share price run-up has taken valuations to even less attractive levels. WSC now trades above mid-cycle valuations of eight times to 10 times PER (price- earnings ratio). We downgrade WSC to sell with a revised RM1.80 target price after moving our metric to earnings-based 10 times PER, from asset-based P/BV (price/book value),” it said. It added that although margins had improved, order book replenishment doubts remained. “1Q09 revenue and net profit fell q-o-q,  as expected, but stronger margins and lower SG&A (selling, general and administrative) expenses were a positive surprise. We raise our FY09 to FY10 earnings by up to 50% but downgrade our recommendation to sell,” noted Maybank IB.It said although it raised WSC’s FY09 to FY10 earnings forecasts, replenishment risk concerns remained. “We now forecast RM112 million to RM113 million core net earnings for FY09-FY10 (previously RM85 million and RM75 million respectively) after incorporating the successful cost-cutting measures and stronger domestic O&G margins. “However, we remain concerned over the drying-up of new job flows, which would affect FY2010 earnings onwards. WSC’s orderbook has contracted from RM1.6 billion in 4Q08 to RM1.4 billion currently,” it added. Even so, Maybank IB said its healthy balance sheet could support M&A opportunities. “Its RM471 million net debt (0.6 times net gearing) as at March 2009 offers it an opportunity to target fire-sale opportunities.” “Recall that WSC has bought out its minority partners in the past. This time, we see a potential candidate in the 30% stake in PPSC Holdings held by Italy-listed distressed Socotherm. Note that 1Q09 minority interests accounted for 42% of WSC’s pre-tax profit,” it added. Wah Seong rose six sen to close at RM1.87 yesterday. This article appeared in The Edge Financial Daily, June 2, 2009.
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