PETALING JAYA: Wasco Bhd
will likely post stronger earnings in these two years, underpinned by its strong order book.
As at the end of June 2023, the company’s order book stood at an all-time high of RM3.59bil.
Hong Leong Investment Bank (HLIB) Research said it was convinced that 2023-2024 would be strong bumper years for Wasco.
The brokerage attributed this to the company’s RM1.1bil line pipe thermal insulation job win from East African Crude Oil Pipeline or EACOP Ltd and the RM558mil engineering, procurement and construction (EPC) of the Agogo floating, production, storage and offloading project for Yinson Holdings Bhd.
HLIB Research raised its target price for Wasco to RM1.25 a share from 96 sen previously, and maintained its “buy” call on the counter.
It said the revised target price was based on 12 times rolled-over 2024 earnings per share (EPS), from 10 times 2023 EPS. It said the valuation was still at a slight discount to the 14 times multiple that it would typically ascribe to local oil and gas services and equipment providers.
HLIB Research expects Wasco to be riding on its robust tender values, and the group to win some of these jobs in the second half of 2023 (2H23) to 1H24.
Wasco’s net profit doubled to RM45.8mil for 1H23 from RM22.4mil in 1H22, as revenue increased to RM1.32bil from RM1.2bil previously.
HLIB Research deemed Wasco’s 1H23 results to be within its expectations.
However, Kenanga Research said the results missed its expectations, due to higher-than-expected operating expenditure.
The brokerage downgraded Wasco to “underperform” from “outperform” previously, with a lower target price of 89 sen from 97 sen previously.
Kenanga Research explained it had cut its earnings forecasts for Wasco by 36% for 2023 and 22% for 2024 to incorporate higher project costs at the energy solutions segment.
“The stock is currently trading at a three-year historical high after having rallied by 78% since its recent trough of 55 sen in November 2022,” Kenanga Research said.
“Given potential downside from our target price, and expectations of profit taking in the near term, we downgrade Wasco to ‘underperform’,” it added.
Nevertheless, it still liked Wasco, noting the company was a beneficiary of the robust tender pipeline for global pipe coating and EPC projects, as well as its thrust into contracting work for sustainable projects, and the fact that it was the second largest market player in the global pipe coating duopoly.
