Wah Seong Corporation Berhad

KENANGA TOP PICKS 2025...

Raising the bar

- 1Q25 will contain the element of wait-and-see, as a cautious ASEAN stock market recently reflects the uncertainty on how tariffs threats will play out, compounded with higher US rate expectation. These 2 conditons resemble 2018 but this time Malaysia is better placed on fundamentals amid structural themes, and has been relatively insulated.

- Amid uncertainty, investors may gravitate towards earnings and outlook visibility. Consumer sector will enjoy the minimum wage tailwind that dovetails with tourism growth. Structurally, AI/ data centre plays offer demand visibility from global big-tech capex ramp up. We also screen for names those offering good dividend yields at a reasonable valuation (exhibit 7), as we believe also that investors will likely hunt for value after recent KLCI pullback. Banks would fall under such a description.

- Borrowing from the barbell investment strategy, we pair the above more steady plays with some higher risk-reward names. This may be sectors that could be more volatile in nature such as petrochemicals and metals, but could profit from demand growth such as China stimulus. Likewise, planters and gloves though at the moment they should display strong quarterly earnings cadence.

$NATGATE / 0270 (NATIONGATE HOLDINGS BERHAD)
$MKH / 6114 (MKH BERHAD)
$WASEONG / 5142 (WAH SEONG CORPORATION BERHAD)

$WASEONG / 5142 (WAH SEONG CORPORATION BERHAD) $WASCO
Research by RHB

$WASCO $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD)
Research by Maybank

KENANGA TOP PICKS Q4 2024

Play broadening out. Post US Federal Reserve’s pivot, Malaysia should remain in a sweet spot as a net beneficiary of equity inflows, thanks to stable interest rate, and relatively appealing valuation versus historical norms. Unsurprisingly, recent market interest has largely been in blue chips, but we see broadening out in foreign interests in key sectors beyond the comfort zone of large caps, such as in banks which is somewhat underway.

Overhang removal play. In 4QCY24, we anticipate news on telco overhang removal for mobile network operators, dovetailing into tech plays to be rekindled as data centre ramp up to fit-out stage. Historically October is a quiet month, but we anticipate 4QCY24 to get more vibrant as domestic news flow ramp up, including Budget 2025, for positioning into more volatile names. Externally, sentiment improvement in US stocks is typical after US elections (5th November).

Negatives priced-in play. Sectors such as oil and gas have been unjustifiably de-rated beyond their fundamentals. Also, as value have emerged, we recently upgraded the glove sector on demand-supply rebalancing (tariffs notwithstanding), and automotive sector.

$DAYANG / 5141 (DAYANG ENTERPRISE HOLDINGS BERHAD) $DIALOG / 7277 (DIALOG GROUP BERHAD) $TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD) $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD) $MKH / 6114 (MKH BERHAD)

Change in Boardroom - MR CHAN CHEU LEONG

WINDING UP / RECEIVER & MANAGER / RESTRAINING ORDER / SPECIAL ADMINISTRATORWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- MEMBER'S VOLUNTARY WINDING UP OF STELLAR MARKETING SDN. BHD., AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF THE COMPANY

Quarterly rpt on consolidated results for the financial period ended 31/03/2024

General Meetings: Outcome of Meeting

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- DISPOSAL OF LEASEHOLD PROPERTY BY THE COMPANY TO SQFT ESTATE SDN. BHD.

Annual Report & CG Report - 2023

Statement/Circular to Shareholders dated 26 April 2024 pertaining to: Part (A) Proposed Authority to Buy-Back its Own Shares by the Company; and Part (B) Proposed Renewal of Shareholders' Mandate for the Existing Recurrent Related Party Transactions of a Revenue or Trading Nature and Provision of Financial Assistance

General Meetings: Notice of Meeting

Changes in Director's Interest (Section 219 of CA 2016) - MR CHAN CHEU LEONG

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- SALE OF PROPERTIES BY MAPLE SUNPARK SDN. BHD., A DIRECT WHOLLY-OWNED SUBSIDIARY OF THE COMPANY TO WASCO THERMAL SDN. BHD., AN INDIRECT 60%-OWNED SUBSIDIARY OF THE COMPANY

OTHERSWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "THE COMPANY")
- PROPOSED AUTHORITY TO BUY-BACK ITS OWN SHARES BY THE COMPANY;
- PROPOSED RENEWAL OF SHAREHOLDERS' MANDATE FOR THE EXISTING RECURRENT RELATED PARTY TRANSACTIONS ("RRPTs") OF A REVENUE OR TRADING NATURE AND PROVISION OF FINANCIAL ASSISTANCE.

$WASEONG / 5142 (WAH SEONG CORPORATION BERHAD) Just realised that despite taking 2 years, this target price was HIT.

A quick update to those who's still invested:

- Orderbook is currently RM3.1b
- Tenderbook RM7b
- EACOP is 40% recognised and coating activity begins Q2 2024 until end of 2025
- YINSON is 50% recognised, will be completed this year
- Existing Qatar work is ongoing and will be completed this year. Currently Wasco is awaiting award for the next job following completion of current job

All in all, the company continues to be busy and keeping high orderbook despite high quarterly revenue, which means they keep winning projects to replenish orderbook.

The stock is still trading at below 10x forward PE of analyst consensus earnings. However, I am taking some money off the table here, it's been a profitable investment.

@zhexiangxd @terencekhong @cwleee @YvonneChong

OIL & GAS
$UZMA / 7250 (UZMA BERHAD) $DAYANG / 5141 (DAYANG ENTERPRISE HOLDINGS BERHAD) $ARMADA / 5210 (BUMI ARMADA BERHAD) $DIALOG / 7277 (DIALOG GROUP BERHAD) $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD)
Research by PB
Neutral

“Accelerated Capex Despite Weaker Earnings”

PETRONAS recorded 4QFY23 core net profit of RM17.6bn, weaker by 20.2% QoQ and 19.0% YoY. This brings its full year FY23 core profit to RM80.4bn, dipping by 14.5% YoY from RM94.1bn in FY22. The weaker earnings are due to moderation in Brent crude oil prices at average of USD82.6/bbl in the year 2023, lower by 18.4% (USD101.3/bbl) in 2022. This has impacted all segmental earnings with the weakest from gas segment, dropping by 29.8% YoY, followed by upstream segment at -23.1% YoY. Despite the subdued performance, PETRONAS’ capital expenditure (capex) increased to RM52.8bn, higher by 5.3% on a YoY basis. The increase was led by domestic capex of RM26.2, higher by 41% YoY and exceeding annualised target of RM22.6bn (RM113bn for FY23-FY27). We expect PETRONAS’ annual domestic capex to remain intact on the back of stable Brent oil prices, supported by OPEC+ production cut extension and demand outlook revision. Hence, the prospect for our local oil and gas service equipment (OGSE) and offshore support vessel (OSV) remains positive for FY24F but potentially seasonally weaker in 1QFY24 due to the monsoon season. Although sentiment has improved slightly, we are still not overly bullish on Brent crude oil prices to be traded sustainably above USD90/bbl in 1H2024. We maintain our Neutral call on the sector.

Analyst(s):
Khairul Fahmi, CFA
khairul.fahmi@publicinvestbank.com.my

OIL & GAS
$DIALOG / 7277 (DIALOG GROUP BERHAD) $YINSON / 7293 (YINSON HOLDINGS BERHAD) $UZMA / 7250 (UZMA BERHAD) $VELESTO / 5243 (VELESTO ENERGY BERHAD) $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD)
Research by Kenanga
Overweight

“4QCY23 Report Card: Upstream Well Oiled”

We upgrade our sector call to OVERWEIGHT from NEUTRAL. There was a significant improvement in the upstream services segment’s earnings delivery (against our expectations) in 4QCY23 sequentially, while that of the petrochemical and shipping segments only matches our expectations. With Brent crude prices expected to remain stable at USD84/bbl, we anticipate an increase in Petronas's upstream spending in 2024, aligning more closely with its RM60b annual capex goal. The upstream services segment appears to be entering the initial stages of a potential upcycle which will usher in an influx of job opportunities in 2024 and potentially more favourable contract terms as the supply of both upstream services and vessels tightens.

Analyst(s):
Lim Sin Kiat, CFA
limsk@kenanga.com.my

$WASEONG / 5142 (WAH SEONG CORPORATION BERHAD)
Research by Maybank
Buy – TP of MYR1.55

“ESG 2.0: Slightly below average”

Our assessment of Wasco’s overall ESG score, under our proprietary ESG scoring methodology, is 48 (out of 100), making its ESG rating slightly below average, in our view. We think that while Wasco has decent ESG targets and qualitative parameters, more needs to be done with regards to its emission disclosures. We maintain our BUY recommendation on Wasco with an unchanged TP of MYR1.55 – based on 12x FY24E PER.

Analyst(s):
Jeremie Yap
jeremie.yap@maybank-ib.com

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- DISPOSAL OF LEASEHOLD PROPERTY BY THE COMPANY TO SQFT ESTATE SDN. BHD.

WINDING UP / RECEIVER & MANAGER / RESTRAINING ORDER / SPECIAL ADMINISTRATORWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- MEMBER'S VOLUNTARY WINDING UP OF PMT-PHOENIX INDUSTRIES SDN. BHD., AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF THE COMPANY

Quarterly rpt on consolidated results for the financial period ended 31/12/2023

Sharing friend’s sales journal

WORST IS OVER? MKT BACK ON TRACK?; IJM TO CATCH UP WITH GAMUDA; DAYANG/WASCO-O&G DARLINGS AGAIN; MSM TOO HIGH?; NETT BUYERS AGAIN...

Normal service resumes? As market was gripped by small cap/retail saga, one wonders if the worst is over as the market looks to have stabilized propped up by better international headlines as China mulling USD278bil market rescue package while US stocks hit all-time highs. Anyways, we have been asking on this crash but *seemingly isolated small cap drama* as everyone tries to time the bottom. Firstly, rather than time, *assessing fundamentals is a better way* as there are fundamentally sound stocks out there. Macro wise, *encouragingly Msia CPI moderated to 2.5% in 23 (vs 3.3% in 22) but Nazmi reminds us to brace for a steady climb in price (3.2% inflation this year)* although this all depends on the *pace/structure of subsidy revisions as new taxes (luxury tax in May), are expected to lift prices* on gradual basis despite softer and diminishing base effect on commodity prices.

So, back to fundamentals as even *SC reminds investors to hunt for stock with strong financial background and so, CUMB’s latest upgrade (ADD: RM2.88) on IJM* couldn’t have come at a better time as it’s time for *IJM to play catch up with Gamuda.* On paper, while *GAMUDA is all the rage regionally, there’s no reason for IJM not to narrow its market cap* with GAM. At our TP, its P/E translates into 18x, still *below 22x average.* With a slew of upcoming wins expected - ie NPE extension, industrial warehouses/data centres, Kuantan port, Shah Alam logistics hub and Kuching transportation system on top of MRT3/Penang – this is where *IJM can leverage on its strong bal. sheet.* Also, with light at end of tunnel for *JV with Pestech (aerotrain) and industrial land exposure in MCKIP,* what’s not to like?

O&G services is another hot segment as CIMB retains *ADD on DAYANG as there’s still ample upside despite outperformance (up 50% since June’23).* While Petronas’ activity outlook offers strong *demand outlook for DAYANG’s services over next 3 years,* it seems market hasn’t really priced this in. For context, at current levels, market is pricing in a *ROIC of 11.3% for Dayang which is below CIMB’s 24/25 forecasts of 14.4-15.8%* while ex-cash valuations at mere 7.8x PE vs. 10 yr avg. of 11.5x. Certainly plenty of room to rerate.

Similarly, *WASCO (ADD) is also thriving and will cont. to surprise on the upside* on back of better margins as a lot more *pipe-coating works were carried out in 4Q which implies margins/earnings* should sequentially *improve in final qtr.* Tenderbook currently stands at RM7bil, a mix of 20% domestic and overseas and with share pricing running 66% over past 12 months, valuations remain *attractive (8.6x vs 10-yr avg. of 10x),* which looks enticing for a *growing O&G* name. At current levels, mkt. is pricing in a *ROE of 12.3% below CIMB ROE forecast of 14%.* Yup, still room to run further.

*RECENT FLOWS: Buy flows back in again though seeing profit taking on some property, O&G, constr’n and names that took off recently. Technically, MSM looks to retest 2021 high though need to break LT resistance at RM2.50 before closing Dec’18 gap. Near term looks overbought and ripe for some selling.*


$IJM / 3336 (IJM CORPORATION BERHAD) $GAMUDA / 5398 (GAMUDA BERHAD) $MSM / 5202 (MSM MALAYSIA HOLDINGS BERHAD) $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD) $DAYANG / 5141 (DAYANG ENTERPRISE HOLDINGS BERHAD)

Changes in Director's Interest (Section 219 of CA 2016) - MR CHAN CHEU LEONG

Changes in Director's Interest (Section 219 of CA 2016) - MR GIAN CARLO MACCAGNO

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSWASCO BERHAD (FORMERLY KNOWN AS WAH SEONG CORPORATION BERHAD) ("WB" OR "COMPANY")
- DISPOSAL OF FREEHOLD LAND AND BUILDING BY WASCO AGROTECH SDN. BHD. (FORMERLY KNOWN AS PMT INDUSTRIES SDN. BHD.), AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF THE COMPANY

Change of Address

Change in Principal Officer - MR YEAP CHEW SOON

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - DATO' SERI ROBERT TAN CHUNG MENG

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - MADAM PAULINE TAN SUAT MING