KUALA LUMPUR: Energy infrastructure company Wasco Bhd's third quarter 2024 (3Q24) core earnings are expected to come in slightly lower due to moderation in its engineering segment as some projects are nearing completion.
Hong Leong Investment Bank Bhd (HLIB Research) said its delivery of topside modules for Yinson Agogo FPSO has achieved 83 per cent completion as of June 2024.
The firm also noted that Wasco is transitioning to some new jobs during the quarter, where revenue recognition is generally slower during the engineering phase as compared to fabrication and construction works.
"Nonetheless, fourth quarter 2024 (4Q24) results are expected to recover strongly as Engineering's contribution normalises," it added.
HLIB Research said Wasco's outstanding orderbook stood at RM3.7 billion as of June 2024, to be completed over the next 12-18 months.
"Following the RM700 million Middle East substation project win in the second quarter of 2024 (2Q24), we understand that there are no major projects clinched in 3Q24, but management expects more tenders to come into fruition in the last quarter.
"The group's tenderbook is about RM7.2 billion, comprising several projects amounting to RM400-600 million each.
"Project margins are expected to stay healthy due to limited competition in the pipe coating business as well as its ability to provide engineering services for its engineering, procurement, and construction (EPC) projects," it added.
Meanwhile, HLIB Research said it does not expect the strength in the US dollar versus ringgit to pose a significant impact on its core earnings and margins, as Wasco is partly shielded by a natural hedge.
"Majority of Wasco's revenue and project costs are denominated in US dollars. Based on our analysis, a 10 per cent weakening of the US dollar versus ringgit would only result in a low to mid-single-digit negative impact on its core earnings base," it said.
HLIB Research further stated that Wasco could potentially declare dividends for financial year 2024.
"We assume the payout to be 30 per cent of its core earnings this year, implying a decent yield of 4 per cent based on its current share price.
"Meanwhile, we reckon Wasco will soon complete the divestment exercise of its non-core businesses, primarily comprising its low-margin trading arm," it added.
HLIB Research has maintained its 'Buy' call on Wasco, with an unchanged target price of RM1.79.