Nord Stream 2 contract to give Wah Seong long-term earnings visibility

Analysts in particular have kept their calls on the stock unchanged pending further clarity on the financial impact of the contract.

KUALA LUMPUR: PublicInvest Research has reaffirmed its “outperform” on Wah Seong Corp with a target price of 94 sen and is currently trading at an attractive level.

It said the new contract secured by Wah Seong has provided the company with long-term earnings visibility.

“Our target price of 94 sen is pegged to eight times price earnings (PE) ratio and FY17 forecast earnings per share 11.7sen.

“The stock is remains attractive at current levels, trading at forward-PE of 6.1 times for FY17 forecast and 5 times for FY18 forecast coupled with this new contract as a growth lever to boost its earnings should see positive reflections in its price levels going forward,” PublicInvest said.

Wah Seong has secured a project from Nord Stream 2 AG for the new pipleline which will deliver gas from North Russia to the German coast near Greifswald.

The pipe coating specialist said the Nord Stream 2 pipeline involves two parallel 48 inch lines, roughly 1,200km each starting from south-west of the Russian port city of St Petersburg on the Baltic Sea and ending at German coast, Greifswald.

PublicInvest said considering the main concern for the group was the current lack of contract replenishments, the new award for the duration of approximately three years would provide longer term earnings visibility to the group, thus further limiting its downside risks.

“We maintain that Wah Seong’s performance has been affected by the oil price sentiment and not due to its execution capabilities, and is poised for better prospects fourth quarter FY16 onwards. The group continues to be the leading contender in the pipe-coating space when the oil and gas market begins to see its recovery,” it added.

Due to the contract being in the final negotiation stages, PublicInvest have yet to account for its contributions to the group. It assumed that the earnings profile would be bell-shaped with the bulk of works to be done in 2017 and 2018.

“Based on the Nord Stream 2 projec’s total capital expenditure of circa 8 billion euros, we believe the portion earmarked for Wah Seong should be relatively sizeable as well. The group’s pipe-coating contract with Statoil for the 482km-long Polarled gas pipeline in Norway was already valued at RM611.3mil, and this current Nord Stream 2 Project is an estimated 1200km per pipeline,” it said.