• WSC’s 3Q23 normalised net profit was up 2% qoq, 24% yoy, and 61% in 9M23, as it executes its record order backlog.

• 9M23 normalised net profit made up 72% of our FY23 forecast. We expect a stronger 4Q23 as completion rates for its key projects pick up pace.

• Reiterate Add with an unchanged GGM-based TP of RM1.40.

3Q23 Results Review

• At the EBIT level, 3Q23 earnings grew by 11% qoq and 35% yoy, driven by higher revenues (+16% qoq and 13% yoy) as the company executed projects locked in under its order backlog. At the net level, however, 3Q23 normalised earnings were up by a lesser 2% qoq and 24% yoy, due to higher finance costs and taxes.

• For 9M23, revenues were up 11%, but EBIT remained flattish as margins were lower by 0.9% pts to 7.8%. 9M23 normalised net profit grew more significantly on the back of a notable turnaround in associate and JV contributions (from a loss of RM17.5m in 9M22 to a profit of RM7.7m in 9M23) on improving activity within the O&G services space.

• Overall, we deem 9M23 normalised net profit in line with our expectations at 72% of our full-year forecast. We expect a stronger 4Q23 due to its key projects – EACOP, Yinson FPSO and a second project in Qatar - picking up pace (work progress for these ranged between 27% and 37% in 3Q23) and margins improving.

Updates From the Analyst Briefing

• Orderbook backlog stood at RM3.6bn as at 3Q23, with 91% of the value stemming from the Energy division (out of which ~50% relates to pipe-coating projects and the balance engineering and construction services), 8% bioenergy and 1% trading business.

• The company secured its maiden carbon capture storage (CCS) pipe-coating project in the Netherlands worth RM63m in Nov 2023. The company expects the project to be completed by Jun 2024. To recap, there is an estimated US$1bn worth of CCS pipecoating work requirements based on planned projects over 2023-2027F, according to management’s estimates.

• It also recently won a RM162m contract from Schneider Electric France to supply prefabricated buildings for a project in Africa to be completed by 2Q25.

• Tenderbook currently stands at RM7bn with project awards mainly expected in 2024.

Reiterate An Add Rating, With a TP of RM1.40

• Despite WSC’s relatively strong share price performance over the past 12 months (+57%), valuations remain attractive, with the stock trading at 7x 2024F P/E (well below its 10-year mean of 10.1x), which we find compelling for an O&G stock with encouraging growth prospects over 2024F-2025F, improving earnings visibility and rising ROEs. We reiterate Add, with a GGM-based TP of RM1.40 (ROE: 13.9%; COE: 11%; LT g: 5%). Potential re-rating catalysts: conversion of its massive tenderbook into new contract wins and higher-than-expected margins. Downside risks include failure to replenish its orderbook and cost overruns for jobs on-hand.

Source: CGS-CIMB Research - 28 Nov 2023