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BIMBSec - Wah Seong Company Update - 20120704

BIMBSec - Wah Seong Company Update - 20120704

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Published by: Bimb Sec on Jul 04, 2012
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07/04/2012

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BIMB SECURITIES RESEARCH
MARKET INSIGHT
Wednesday, 4 July, 2012
Company Update
PP16795/03/2013(031743)
 
| 1
Wah Seong
Trading Buy
Details Out
Price: RM1.92Target Price: RM2.28
Stock Data 
Bloomberg Ticker WSC MK Altman Z-score 2.5Market Cap 1,487.8 YTD price chg -7.2%Issued shares 757.3 YTD KLCI chg 5.0%52-week range (H) 2.43 Beta 0.852-week range (L) 1.79 Major Shareholders3-mth avg daily volume 0.4 Wah Seong (M) 32.7%Free Float 41.53% KWAP 5.0%Shariah Compliant Y Midvest Asia S/B 4.9%
Share Performance (%)
 
1mth 3mth 12mth
Absolute 4.3% -6.3% -16.9%vs. KLCI 0.9% -6.8% -20.6%
Financial Highlights FYE 31 Dec 2009 2010 2011 2012E 2013E
Turnover 1,950.3 1,523.4 1,889.1 2,012.3 2,268.3EBIT 280.9 113.8 209.5 204.3 226.3Pretax profit 245.8 86.2 173.3 174.3 198.3
Core Net Profit 121.3 56.0 110.4 115.0 130.9
EBIT margin 14.4% 7.5% 11.1% 10.2% 10.0%Pretax margin 12.6% 5.7% 9.2% 8.7% 8.7%Effective tax rate -16.1% -24.6% -24.3% -22.0% -22.0%ROE 13.7% 6.0% 11.0% 10.7% 11.4%ROA 9.3% 3.2% 5.7% 5.6% 6.0%Net Gearing (x) 0.27 0.25 0.21 0.17 0.25Core EPS (sen) 16.0 7.4 14.6 15.2 17.3Core EPS growth 29.4% -53.9% 97.2% 4.2% 13.8%PER (x) 12.0 26.0 13.2 12.6 11.1DPS (sen) 5.0 4.3 6.0 6.8 7.8Div. Yield (%) 2.6% 2.3% 3.1% 3.6% 4.1%NTA/share (RM) 1.20 1.23 1.30 1.40 1.50
Growth ratios 
Turnover -16.8% -21.9% 24.0% 6.5% 12.7%EBIT 80.4% -59.5% 84.1% -2.5% 10.8%Pretax profit 87.5% -64.9% 101.1% 0.6% 13.8%Core Net profit 29.4% -53.9% 97.2% 4.2% 13.8%
Share Price Chart
 
Chiong Tong Chai
 
03-26918887 ext 175
 
Subsequent to its successful bid for the 26.9% stake inPetra Energy (PE) from Perdana Petroleum (PP), WahSeong has announced the pricing details of the deal atRM1.68 per share, or a 5.5% premium over
PE’s net asset
value. While we are positive on this deal as a way of earnings base diversification, we are less sanguine on theon-going USD25m Atama Resources deal, as the operatingrisk is high. Overall,
with its balance sheet’s improvement
over the last few years, we foresee no significant (if any)credit metrics deterioration from these deals. However,reservations over the
group’s
further investmentrequirements could create some uncertainty over the
Group’s credit profile. Maintain our forecast and Trading
Buy call at target price of RM2.28.
 
Slightly lower than previously indicated.
The purchaseprice of RM1.68 is slightly lower than the indicative price of RM1.70 and represents a mild premium of 5.5
% against PE’s
net asset value. The total gross purchase consideration of RM96.9m is digestible even after we factored in Wah
Seong’s early investment commitment in Atama Resources
of USD25m, considering its strong liquidity level with cashholding of about RM580m and balance sheet flexibilitywhich has strengthened over the past few years. Pending
PP’s
shareholders approval, the transaction is expected tobe closed in 3QFY12.
Diversified earnings base/risk.
We reckon this acquisitionby Wah Seong will allow it to entrench its business withinthe oil and gas value chain, considering
PE’s
strongexposures particularly in brownfield services segment. Thistransaction may also allow Wah Seong to diversify itsearnings base and risk as most of its current oil and gasbusinesses are relying heavily on one-off contract which issusceptible to contract delay and industry contraction. As asecond largest shareholder, we expect the Group to have atleast a
representative in PE’s board.
Nevertheless, we areless sanguine on its USD25m investment in AtamaResources given the high operating risk involved indeveloping a greenfield plantation asset in a country thatinherited high political risk.
No change in forecast.
Pending the deal, we made nochange to our numbers. For illustrative purposes, based onstreet estimates, the deal could marginally boost Wah
Seong’s bottomline by RM5m in FY13.
 
Valuation & Recommendation
. We maintained our
TradingBuy
call on the counter with target price of 
RM2.28
basedon PER of 15x on FY12 EPS of 15.2sen.
 

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