PETALING JAYA: Wasco Bhd
’s core earnings for the third quarter of financial year 2024 (3Q24) are expected to come in slightly lower on a quarter-on-quarter basis due to moderation in its engineering segment as some projects are nearing the completion stage.
Hong Leong Investment Bank (HLIB) Research said the group, formerly known as Wah Seong Corp Bhd, was transitioning to some new jobs during 3Q24 where revenue recognition was slower during the engineering phase, as compared to fabrication and construction works.
“Among others, its delivery of topside modules for Yinson Production’s Agogo floating storage production and offloading vessels (FPSOs) has achieved 83% completion as at June 2024.
“Nonetheless, 4Q24 results are expected to recover strongly as engineering’s contribution normalises,” the research house said in a report yesterday.
HLIB Research noted that Wasco’s project margins will remain healthy due to limited competition in the pipe coating business, as well as its ability to provide engineering services for its engineering, procurement and construction projects.
“Wasco’s outstanding order book stood at RM3.7bil as at June 2024, to be completed over the next 12 to 18 months.
“Following the RM700mil Middle East substation project win in 2Q24, we understand that there were no major projects clinched in 3Q24 but management expect more tenders to come into fruition in the last quarter.”
Moreover, Wasco’s tender book stands at about RM7.2bil, comprising several projects worth RM400mil to RM600mil each.
The research house noted that the recent strength in the US dollar versus the ringgit is not expected to significantly impact the group’s core earnings and margins, as SLP is partly shielded by a natural hedge.
“The majority of Wasco’s revenue and project costs are denominated in US dollar.
“Based on our analysis, a 10% weakening of the US dollar versus the ringgit would only result in low to mid-single digit negative impact on its core earnings base.”
HLIB Research opines that Wasco could potentially declare dividends for FY24.
Its last dividend payout was for FY20.
“We assume the payout to be 30% of its core earnings this year, implying a decent yield of 4% based on its current share price.”
Wasco is also projected to complete the divestment of its non-core businesses, primarily comprising the group’s low-margin trading arm.
“We note that the trading entities had a book value of about RM20mil as at end-2023 and generated profit after tax of RM4.7mil in FY23,” the research house said.
HLIB Research maintains its “buy” call for Wasco with a target price of RM1.79.
It viewed Wasco as an ideal proxy to ride on the capital expenditure upcycle in the oil and gas sector, and the acceleration of energy transition developments.
