Thursday, November 24, 2011

RHB Research lowers Wah Seong to Underperform from Market Perform

KUALA LUMPUR (Nov 24): RHB Research Institute has reduced its FY12-13 revenue estimates for Wah Seong Corp Bhd by -10.2% and -10.0% respectively as it factors in lower wins going forward.

'This results in our net earnings estimates falling by 17.1% and 16.7% respectively,' it said on Thursday.

RHB Research said its new fair value estimate is RM1.49 a share based on unchanged 11 times FY12 PER.

'We are cognisant of the potential volume of domestic contracts that will be rolled-out by Petronas within the next five years but the exact timeline and the quantum of these contracts are still uncertain. Downgrade to Underperform,' it said.

The research house said that Bredero-Shaw received a letter of intent from Mitsui & Co for the pipe-coating contract, estimated to be worth US$400 million (RM1.2 billion), on the Ichthys Gas Field Development project.

'We understand that the main reason Wah Seong lost out on this project was that its plant is currently too busy to facilitate the pipe-coating schedule that was required.

'Management is confident that it will still be able replenish its contracts from the domestic pipeline replacement projects ahead. There would likely be minimal competition from Bredero-Shaw which now has its hands full with the two large Australian contracts (Wheatstone and Ichthys) won recently,' it said.

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