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Tuesday, June 30, 2015

CIMB Research keeps Wah Seong top oil and gas small cap pick

KUALA LUMPUR: CIMB Equities Research maintains its Add call for Wah Seong which is its top oil & gas small-cap pick, with a larger presence in Europe and North America being a potential re-rating catalyst.     
“Accumulate Wah Seong shares and ride on the company’s shift from project-based income to annuity-like earnings,” it said on Tuesday.  
CIMB Research continues to value the stock at a CY16 P/E of 10.5 times, a 30% discount to the oil & gas big-caps.
It has a target price of RM1.88, which is 42.1% above the last traded price of RM1.32.
It said Petronas’s steel-cutting ceremony for Rapid’s steam cracker complex on June 15 marked the start of construction works for the US$16bn Rapid project in Pengerang.
Another Pengerang highlight this month is Wah Seong’s first shipment of spiral-welded onshore steel pipes.
“While this is good news, we are more excited about the company’s further in-roads in Europe and North America that could give more stability to its bottomline, which is mostly project-based,” it said.
The first shipment of spiral-welded onshore steel pipes for the RM202mil Pengerang contract began earlier this month.
Production started at the company’s Sabah and Penang facilities last month following a letter of intent received in 1Q15. The last shipment is expected to take place in mid-2016. 
As at March 31, 2015, Wah Seong had RM1.2bil of orders, of which 59% came from oil & gas, 25% from renewable energy and 16% from industrial trading and services. Its tender book is worth RM5bil, of which 80% consists of oil & gas jobs. 
“We are encouraged by Wah Seong’s small presence in Pengerang. Nonetheless, the big prizes that management is eyeing are in Europe and North America,” it  said.
CIMB Research said Wah Seong was riding high on the success of the RM627mil pipe-coating contract for Statoil’s Polarled project in Norway.
“Management is looking forward to potentially securing a second contract – worth no less than US$100mil – with Statoil in Norway, where it already has an onsite, mobile plant that is handling the Polarled pipes and is aiming to further serve the North Sea market.
“Meanwhile, in North America, management is bidding for jobs that are potentially recurring, using 49%-owned Bayou Wasco’s deepwater plant in Louisiana as its key asset,” it said.

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