BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2012(029624)

Thursday, 23 February, 2012

Results Review

Wah Seong Corporation

Above Fading Momentum
WSC MK 1,507.1 Equity 753.6 2.45 1.88 0.9 40.34% Y N Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders Wah Seong (M) Trading KWAP Midvest Asia SB 2.7 -3.4% 1.9% 0.9 33.2% 5.1% 5.1% Stock Data Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant Financial Derivatives Share Performance (%) Absolute vs. KLCI Financial Highlights FYE 31 Dec 2009 Turnover 1,950.3 (RMm) EBIT 280.9 Pretax profit 245.8 Core Net Profit 121.3 EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Core EPS (sen) PER (x) DPS (sen) Div. Yield (%) NTA/share (RM) Growth ratios Turnover EBIT Pretax profit Core Net profit Share Price Chart 14.4% 12.6% -16.1% 13.7% 9.3% 0.27 16.1 12.4 5.1 2.5% 1.21

Trading Buy
Price: Target Price: RM2.00 RM2.38
FY11 earnings doubled from a low base in FY10, mainly driven by improvements in the O&G segment which recorded almost a 3-fold jump in pre-tax contribution thanks largely to the back-on track Gorgon project which also offset the slightly weaker performances of the other segments. Excluding the one-off impairment of RM19.5m, result was 15% higher than our estimates of RM119m. Quarterly performance continued to weaken despite the higher revenue. Orderbook of RM1.2bn is expected to anchor earnings for FY12. Maintain our forecast but downgrade our call to Trading Buy. Target price maintain at RM2.38 based on PER of 15x on FY12 EPS of 15.9sen. Continue to weaken QoQ. Despite the strong set of full year results, quarterly performance continued to decline rd for the 3 consecutive quarters with net earnings lower by 8.3% despite higher revenue QoQ, this was partly due to higher effective tax of 38.6% charged in the quarter as well as one off impairment on asset of RM16m. Second interim tax free dividend of 3sen was declared, bringing FY11 total dividend to 6sen or a 3% yield. No change in forecast. For FY12, earnings will be anchored by orderbook of RM1.2bn of which 67% came from O&G segment. We also expect pipe coating projects from the domestic front to flow albeit at a smaller value arising from on-going pipe replacement exercise. Towards the end of the year, we could see tender results for both the North Malay Basin (250km pipeline length) project and the pipeline tieback project for Kebabangan which will provide earnings visibility for FY13. Uncertainties on new venture. Pending for more clarity in its latest investment into upstream plantation business in Congo, we expect investors would continue to adopt a cautious stance on the stock. Our take from this venture is that it would likely to prolong the de-merger process than otherwise considering the potential capital outlay required to develop the green field which is likely to impose significant financial burden and earnings risk on the standalone non-O&G arm. Valuation & Recommendation. Wah Seongs plantation venture would likely to shadow its share price movement until more clarity is seen. Downgrading our stance to Trading Buy with Target Price at RM2.38 which pegged on PER of 15x.

1mth -5.2% -7.5%

3mth -1.5% -9.2%

12mth -6.1% -11.4%

2010 1,523.4 113.8 86.2 56.0 7.5% 5.7% -24.6% 6.0% 3.2% 0.25 7.4 26.9 4.4 2.2% 1.23

2011 1,889.1 209.5 173.3 110.4 11.1% 9.2% -24.3% 11.0% 5.7% 0.21 14.6 13.7 6.0 3.0% 1.31

2012E 2,037.3 211.0 181.0 119.4 10.4% 8.9% -22.0% 11.1% 5.9% 0.19 15.9 12.6 7.1 3.6% 1.41

2013E 2,283.3 230.4 202.4 133.6 10.1% 8.9% -22.0% 11.6% 6.1% 0.26 17.7 11.3 8.0 4.0% 1.51

-16.8% 80.4% 87.5% 29.4%

-21.9% -59.5% -64.9% -53.9%

24.0% 84.1% 101.1% 97.2%

7.8% 0.7% 4.5% 8.2%

12.1% 9.2% 11.8% 11.8%

Chiong Tong Chai chiongtc@bimbsec.com.my 03-26918887 ext 175

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23 February 2012

Results Review: Wah Seong Corporation 4QFY11

4QFY10 397.2 40.5 35.3 (7.5) 3.0 27.7 24.8 3.3 0.3 10.2% 8.9% 7.0% 21.4% 1QFY11 490.9 73.8 68.7 (16.9) 8.4 51.7 43.4 5.8 0.2 15.0% 14.0% 10.5% 24.7% 2QFY11 405.2 41.6 34.4 (5.0) 3.2 29.4 26.2 3.5 0.2 10.3% 8.5% 7.3% 14.6% 3QFY11 478.8 52.2 36.7 (7.1) 8.2 29.5 21.3 2.8 0.2 10.9% 7.7% 6.2% 19.5% 4QFY11 514.2 41.9 33.5 (12.9) 1.0 20.6 19.5 2.6 0.2 8.2% 6.5% 4.0% 38.6% QoQ 7.4% Chg -19.6% -8.6% 81.4% -87.4% -30.4% -8.3% -8.3% 0.0% -25.1% -14.9% -35.2% 98.6% YoYChg 29.5% 3.5% -5.0% 71.7% -64.7% -25.8% -21.2% -21.2% -21.0% -20.1% -26.6% -42.7% 80.7% 12MFY11 1,889.1 209.5 173.3 (42.0) 20.9 131.2 110.4 14.6 0.2 11.1% 9.2% 6.9% 24.3% 12MFY10 1,523.4 113.8 86.2 (21.2) 9.0 65.0 56.0 7.4 0.3 7.5% 5.7% 4.3% 24.6% YTD 24.0% Chg 84.1% 101.1 98.2% % 132.6 102.1 % 97.2% % 97.2% 48.5% 26.0% 62.2% 62.9% -1.4%

Quarterly figures
FY 31 Dec (RMm) Revenue EBIT Pretax profit Taxation Minority Interest Net Profit Core Net Profit EPS (sen) Net gearing (x) EBIT margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%)

Source: BIMB Securities

Income Statement
FY 31 Dec (RMm) Revenue Pretax profit Net profit EPS (sen) EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) P/NTA (x) Net div. yield (%) EV/ EBITDA (x) ROE (%) 2009 1,950.3 245.8 121.3 16.1 29.4% 5.1 1.2 0.3 12.4 1.7 2.5% 7.0 13.7% 2010 1,523.4 86.2 56.0 7.4 -53.9% 4.4 1.2 0.3 26.9 1.6 2.2% 12.6 6.0% 2011 1,889.1 173.3 110.4 14.6 97.2% 6.0 1.3 0.2 13.7 1.5 3.0% 8.8 11.0% 2012E 2,037.3 181.0 119.4 15.9 8.2% 7.1 1.4 0.2 12.6 1.4 3.6% 8.1 11.1% 2013E 2,283.3 202.4 133.6 17.7 11.8% 8.0 1.5 0.3 11.3 1.3 4.0% 10.4 11.6%

Source: BIMB Securities

Balance Sheet
FYE 31 Dec (RMm) Non Current Assets Current Assets Total Assets Current Liabilities Non Current Liabilities Shareholders' Fund Minority Interests Equity & Liabilities 2009 893.5 1313.2 2206.7 671.8 500.3 885.5 149.0 2206.7 2010 793.8 1215.9 2009.7 510.8 458.3 925.5 115.1 2009.7 2011 759.7 1535.9 2295.6 808.7 389.3 1004.0 93.7 2295.6 2012E 843.2 1567.2 2410.4 872.8 361.6 1076.0 100.0 2410.4 2013E 933.2 1645.9 2579.1 941.8 387.9 1149.5 100.0 2579.1

Source: BIMB Securities

www.bimbsec.com.my

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23 February 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Results Review: Wah Seong Corporation 4QFY11

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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