Wasco recorded core net profit after tax and minority interest (PATAMI) of RM33.7m, stronger by 60.9% YoY driven by higher progress billings from the energy services segment. On a QoQ basis, Wasco core PATAMI increased by 15.1% due to higher contributions from its associates and joint ventures, a lower tax rate and lower minority interests despite a lower gross margin for the period. Overall, its 1HFY24 numbers are broadly meeting our and consensus full-year estimates at 54.8% and 56.2%, respectively. The management expects 2HFY24 performance to be similar or better compared to 1HFY24. However, we make no changes to our estimates considering the downside risk of the normalisation of gross margin, effective tax rate and minority interest in 2HFY24 due to local presence of its global operations. Nevertheless, its outlook remains bullish with a higher orderbook of RM3.7bn (1QFY24: RM3.2bn) on the back of RM7.2bn tenderbook. We reiterate our Outperform call and TP of RM2.10 pegged on unchanged 14x PE ratio.

• Higher progress billings but lower margin. Wasco recorded higherquarterly revenue at RM702.7m, up by 9.1% on a QoQ basis. This isattributed to the increase in key projects from the energy servicessegment: i) Yinson Agogo at 83%, ii) Schneider EACOP at 19%, iii)NFXP at 82% and iv) EACOP at 45%. However, the project mix hasresulted in a lower gross margin by -6.2ppts. This was mitigated by alower effective tax rate and minority interest, hence it managed to recordgrowth at core PATAMI level, higher by 15.1% QoQ.

• Moderated bioenergy segment. Wasco’s bioenergy services recordedlower revenue and segmental profit on 1HFY24 basis by -6.1% and -24.0% respectively due to lower turbine deliveries at 37 units against 45units in 1HFY23. The interest in its turbines remains strong, yet it hasnot been converted into larger actual sales.

• Bullish outlook with higher orderbook of RM3.7bn. Wasco’sorderbook has increased significantly from RM3.2bn to RM3.7bn in2QFY24 including substation project in the Middle East region and Trolland Kasawari CCS. The orderbook could swell further in 2HFY24, whichis timely in our view as some key projects are scheduled to be completedin the period such as NXFP and Yinson Agogo. We believe theorderbook will sustain above RM3.0bn, backed by aRM7.2bntenderbook, amid various projects in the pipeline from the countrieswhere it operates, driven by energy security due to increasinggeopolitical risks. We also foresee the emergence of PETROS in thelocal industry landscape posing minimal risk to Wasco, given its globaloperations and the fact that less than 10% of its revenue is contributedby local clients.

Source: PublicInvest Research - 30 Aug 2024