WASEONG (5142) : Wah Seong Corp - Rocking a new coat
Target RM2.65 (Stock Rating: ADD)
Wah Seong has been appointed as an exclusive manufacturer and marketer for Petronas’s new coating technology, Remcoat. It is premature to gauge Remcoat’s impact on Wah Seong’s bottomline for now, but we think Remcoat could be the company’s third source of long-term income. We continue to value the stock at a CY16 P/E of 14.8x, still at a 30% discount to the P/E of the oil & gas big caps. The shift from project-based income to annuity-like earnings is a long-term positive and a potential re-rating catalyst that supports our Add rating.
What Happened
Petronas Technology Ventures Sdn Bhd (PTVSB) has inked a five-year exclusive licensing agreement with Wah Seong for the marketing rights of the former’s homegrown product, Remcoat, which offers three-layer protection for pipelines for over 20 years. Wah Seong will manufacture and market Remcoat to the global market. Remcoat is currently being used in Petronas’s Garraf project in southern Iraq.
What We Think
The collaboration is a positive development, although it is still early days for it to make a substantial impact on the bottomline. We understand that Wah Seong had supported PTVSB during the R&D process on Remcoat by allowing PTVSB to test the technology on Wah Seong’s pipelines, leading PTVSB to award the marketing rights to Wah Seong. Wah Seong will manufacture Remcoat at its pipe-coating plant in Kuantan. With the RM232m North Malay Basin contract completed in 2Q14 and the bulk of the RM627m Polarled contract now being executed in Norway, the Kuantan facility will have the capacity to meet global demand. Remcoat could provide Wah Seong with a steady income in the long run, thus lending more stability to the bottomline that is currently driven by lumpy pipe-coating contracts. Wah Seong’s two other sources of steady income are its 26.9% stake in Petra Energy and a 49:51 JV, which owns five vessels, with Alam Maritim.
What You Should Do
Accumulate the stock. With the Polarled project going without a hitch, FY14 is set to be a record year for Wah Seong. We expect more exciting times in FY15-16 when annuity-like contributions from Petra and Alam JV flow through substantially.
Source: CIMB Daybreak - 19 December 2014
Target RM2.65 (Stock Rating: ADD)
Wah Seong has been appointed as an exclusive manufacturer and marketer for Petronas’s new coating technology, Remcoat. It is premature to gauge Remcoat’s impact on Wah Seong’s bottomline for now, but we think Remcoat could be the company’s third source of long-term income. We continue to value the stock at a CY16 P/E of 14.8x, still at a 30% discount to the P/E of the oil & gas big caps. The shift from project-based income to annuity-like earnings is a long-term positive and a potential re-rating catalyst that supports our Add rating.
What Happened
Petronas Technology Ventures Sdn Bhd (PTVSB) has inked a five-year exclusive licensing agreement with Wah Seong for the marketing rights of the former’s homegrown product, Remcoat, which offers three-layer protection for pipelines for over 20 years. Wah Seong will manufacture and market Remcoat to the global market. Remcoat is currently being used in Petronas’s Garraf project in southern Iraq.
What We Think
The collaboration is a positive development, although it is still early days for it to make a substantial impact on the bottomline. We understand that Wah Seong had supported PTVSB during the R&D process on Remcoat by allowing PTVSB to test the technology on Wah Seong’s pipelines, leading PTVSB to award the marketing rights to Wah Seong. Wah Seong will manufacture Remcoat at its pipe-coating plant in Kuantan. With the RM232m North Malay Basin contract completed in 2Q14 and the bulk of the RM627m Polarled contract now being executed in Norway, the Kuantan facility will have the capacity to meet global demand. Remcoat could provide Wah Seong with a steady income in the long run, thus lending more stability to the bottomline that is currently driven by lumpy pipe-coating contracts. Wah Seong’s two other sources of steady income are its 26.9% stake in Petra Energy and a 49:51 JV, which owns five vessels, with Alam Maritim.
What You Should Do
Accumulate the stock. With the Polarled project going without a hitch, FY14 is set to be a record year for Wah Seong. We expect more exciting times in FY15-16 when annuity-like contributions from Petra and Alam JV flow through substantially.
Source: CIMB Daybreak - 19 December 2014
