PETALING JAYA: Energy infrastructure firm Wasco Bhd
’s medium-term growth prospects across its pipe coating, engineering and bioenergy businesses remain robust, analysts say.
Kenanga Research, which upgraded its call on Wasco to “outperform” with a higher target price at RM1.70, said it felt more upbeat on the group following its investor day recently.
One of the key takeaways from the investor day was that Wasco expects the demand for pipe coating to sustain its upward trajectory, driven by an anticipated increase in global pipeline construction.
“The company expects the pipe coating industry to benefit from the production ramp-up of oil and gas, as well as investment in new energy (carbon capture and hydrogen) infrastructure by oil majors globally.
“GlobalData projects that 196,130km of new trunk oil and gas pipelines will be laid from now until 2030.
“This represents a significant increase compared to the 102,000km of new pipelines laid over the past seven years, according to GlobalData,” stated Kenanga Research.
The research house also noted that contract terms have also become more favourable for Wasco’s pipe coating and upstream module fabrication services amid stiff competition for qualified contractors.
“We expect its earnings before interest and tax (Ebit) margin to average close to 8.1% in the financial year of 2024 (FY24) compared to 7.4% in FY23.”
After imputing higher revenues and Ebit margin assumptions, Kenanga Research raised its FY24 to FY25 earnings forecasts by 7% and 11%, respectively.
In a separate note, RHB Research retained its “neutral” call on Wasco despite its optimism regarding the group’s earnings prospects in the medium term.
“We believe current valuation has factored in its order book level of about RM3bil to RM3.5bil.
“We see further upside if Wasco is able to deliver much stronger replenishments coupled with better margins and unlock value on its existing assets.
“We are also pleasantly surprised by the potential resumption of dividend payments after three years.”
On Wasco’s engineering division, RHB Research said it continues to see robust job opportunities – premising on the need to expedite capital expenditure spending and upgrade aging oil and gas facilities to sustain efficient production following the underinvestment between 2014 and 2022.
The group has tendered for early production facilities and sees more non-oil and gas job flows, including modularised data centres.
“The capacity’ tightness also suggests that the bargaining power has now switched back to the contractors, and Wasco is in a position to capitalise on this given its strong in-house engineering, procurement and construction capabilities and delivery track record,” it said.
Meanwhile, RHB Research further noted that Wasco’s focus on the bioenergy value chain is opportune given the sector’s growth, evidenced by the National Energy Transition Roadmap, where it outlines the target to increase bio refinery capacity to 3.5 billion litres and biomass power generation capacity to 1.4GW by 2050.
Looking ahead, RHB Research said Wasco will be more selective with future job bids as it is comfortable maintaining an order book in the RM3bil to RM3.5bil range.
It will prioritise projects that offer higher returns and lower risks.
“The group has a tender book size of RM7.3bil and identified an addressable market size of RM13bil. This positions Wasco for a steady outlook over the next five years,” it said.
RHB Research has maintained its target price at RM1.55 per share.
