KUALA LUMPUR: Wah Seong Corporation Bhd (WSC), which is vying to acquire the world’s second largest pipe-coating firm, is bidding for some RM5.3 billion jobs in Southeast Asia, China and Australia to replenish its current order book of some RM1.4 billion.

The company had also submitted a bid to acquire the entire assets of troubled Italian pipe-coating company Socotherm SpA three weeks ago.

WSC managing director and group CEO Chan Cheu Leong said it had tendered for jobs that included major pipe-coating projects in Malaysia, Thailand, Vietnam, China and Australia.

He said WSC, which is controlled by IGB Bhd’s Tan family, was expected to ride on the increase in the oil and gas activities in the second half (2H) of the year.

“This is due to the increasing demand for gas in Asia and with improvement in crude oil price, major oil and gas infrastructure projects that had previously been in planning stages or deferred are now being activated,” he said at a media briefing on the progress of the company and the unveiling of its new logo here yesterday.

Out of WSC’s RM1.4 billion order book, about 60% is related to pipe coating, including the Chevron Australia Gorgon project worth some US$162.9 million (RM537.6 million). The rest are from engineering and cargo-based work and building material businesses.

WSC deputy MD Giancario Maccagno said the outcome of its bid to buy Socotherm, the world’s second largest pipe-coating firm, would be known by the end of next month.

He said the company was “confident” of a successful acquisition as it had the business know-how, a strong cash reserve of over RM400 million and a low gearing of 0.3 times. Noteworthy is that Maccagno was also a former employee of Socotherm, which is currently in the midst of a debt restructuring.
Although no acquisition price was disclosed, based on the size of WSC, he said the company could “swallow” acquisitions that cost between RM300 million and RM500 million.

Maccagno added that the acquisition had to be sizeable enough to enhance its core business or to become another core business of WSC and contribute to the group’s income.

He said it was also in talks with Orleans Group to buy a 60% stake in the latter’s Nigerian pipe-coating business which was acquired from Socotherm.

In a note yesterday, Kenanga Research said it would still be positive on WSC if it opted for a “technical assistance” partnership with Orleans instead of an equity acquisition, as it would mean that country’s risk was significantly mitigated.

According to a Reuters report in January, Socotherm, which specialises in coatings for petrol, gas and water pipes, filed for creditor protection late last year.

The report cited that in the first half of the year, Socotherm reported a net loss of €57.2 million (RM260 million), widening from €14.9 million a year earlier.

However, Maccagno said during the good days, Socotherm was a thriving company making some €300 million in revenue yearly.

He noted that about US$170 billion was expected to be spent on deepwater exploration and production in the next five years, of which 75% would be invested in West Africa, Brazil and the Gulf of Mexico.

Acquiring Socotherm, which has a large presence in those regions, would position WSC to tap into the US$127 billion exploration market.

Maccagno said merger and acquisition was an important growth strategy for WSC, which derives about 15% of its yearly revenue growth from new acquisitions.

On its ongoing rebranding and restructuring exercise, Chan said 25 of its subsidiaries would be placed under six very distinct divisions: pipe coating, pipe manufacturing, engineering, renewable energy, trading and exploration and production services.

The six divisions would be parked under Wasco Energy, which in turn is a 100% subsidiary of WSC.

“This (restructuring and rebranding) is a very important exercise for us as the move will allow WSC to be more focused and meet our vision of developing and managing a world-class and profitable, integrated energy infrastructure group,” said Chan.

WSC is currently one of the analysts’ darling stocks in the oil and gas sector and is trading at a trailing price-to-earnings ratio of 15.44 times.

Since February, the counter has had six buy, three outperform, three hold and two neutral calls. Target price consensus is RM2.96 per share.

Chan opined that it was perhaps timely for WSC to be recommended an upward re-rating, given its potential growing order book and acquisitions.

This article appeared in The Edge Financial Daily, March 18, 2010.