WASEONG (5142) - Nord Stream 2 deal to drive Wah Seong future earnings

Tuesday, 2 August 2016
Nord Stream 2 deal to drive Wah Seong future earnings

PETALING JAYA: Oil and gas services provider Wah Seong Corp Bhd’s recent Nord Stream 2 contract win is expected to drive the company and address its order book replenishment as well as earnings risks over the next three years, said Maybank IB Research.

The research house estimates the contract value at RM2.4bil to RM3bil.

“We raise Wah Seong’s 2017 to 2018 earnings by 84% to 727% to factor in the Nord Stream 2 contract win,” said Maybank IB Research in a report.

While the final value of the contract has yet to be determined, the research house conservatively assesses that this project alone will single-handedly contribute RM2.4bil to RM2.8bil to Wah Seong’s order backlog, premised on the assumption of US$250 to US$290 per km of pipeline.

In comparison with Statoil’s Polarled development project job win in 2013, this Nord Stream 2 job value should be 24%-34% below Polarled’s value per km. The Polarled development project was valued at US$198mil for a 520km pipeline, which works out to US$380 per km.

“We deem this to be fair due to the workscope involved, premised on the quality of coatings to be used and massive cost cutting in the industry.

“Earnings-wise, we estimate this job to contribute RM240mil to RM420mil to pre-tax profit over the 36-month job duration, based on a 10% to 15% margin assumption,” said Maybank IB Research.

The research house opined that the market has yet to catch up to the intensity of the Nord Stream 2 contract win, adding that this project alone would reverse the unfavourable prospects of Wah Seong’s plantation, renewable energy, as well as industrial trading and services divisions, which are either loss-making or reporting lower earnings.

Nord Stream 2 AG had recently awarded Dutch Wasco Coatings Europe BV the concrete weight storage and coating tender of more than 200,000 pipes for the construction of the Nord Stream 2 pipeline.

Pipe deliveries to concrete weight coating facilities are expected to begin in September 2016, while the concrete weight coating process would commence next year.

This project is scheduled for completion by the end of the third quarter of 2019, which will take 36 months.

WASEONG (5142) - Nord Stream 2 deal to drive Wah Seong future earnings