MIDF Research has upgraded Wah Seong Corp Bhd (WSC) to “buy” with a RM2.20 target price on revival of the oil and gas segment.
Wah Seong saw its second quarter earnings nearly quadruple from a year ago to RM40.1 million — the highest since 2011.
The second quarter earnings rose to its highest level of RM40.1 million since the first quarter of 2011.
The impressive earnings were underpinned by contributions from the oil and gas segment, MIDF Research said.
The six-month cumulative earnings of RM60.7 million kept pace with MIDF Research’s expectations, accounting for 54 per cent of its full-year forecast.
However, Wah Seong’s six-month earnings could have possibly overshot consensus’ full-year forecast by a few percentage points, the firm said, adding that quarterly net margin was 6.1 per cent, similar to levels achieved in 2011.
MIDF Research said the oil and gas segment staged a revival after recording losses in the first six months of last year.
“Segment revenue for the quarter more than doubled year-on-year to RM379.9 million. Pre-tax profit staged an even more astounding figure of RM69.9 million.
“The company attributed this to the aggressive execution of two of its major pipe-coating jobs in the quarter.
“Consequently, pre-tax margin recorded a commendable figure of 18.4 per cent, double the pre-tax margin of first quarter of this year,” the company explained.
MIDF Research said Wah Seong’s management had guided that the flat numbers recorded were a result of slowdowns in the oleo-chemical industries, which in turn resulted in lower number of projects being executed during the period under review.
The firm rated Wah Seong a “buy” as it believes that this might just be the turnaround the market has been expecting.
It noted that the company’s orderbook is now at RM1.5 billion, of which RM1.1 billion are jobs from the oil and gas segment, RM282.5 million from the renewable energy and RM189.4 million from the industrial trading and services.