Wah Seong Corp Wholly owns Spirolite now

News   Wah Seong (“WASEONG”) announced that its subsidiary, Syn Tai Hung Trading (STHT) had
acquired 51.5% of Spirolite from its other shareholders namely IJM Corp (37.5%), Norwest
Holdings (12%) and Lau Kee Hong (2.0%) for a total cash consideration of RM12.9m. STHT is the current
owner of the remaining 48.5%.

The sale is conditional upon STHT obtaining an approval letter from the Ministry of International Trade.

Spirolite specialises in the trading of polyethylene pipes and tank systems.


Comments    We are neutral on the acquisition as we understand that the division will not have a material contribution to the entire group in the near term.

However, we understand that the rationale behind the acquisition is to enable STHT to further expand
its position in the polyethylene products business, which complements the business of trading and distribution of building materials.


Outlook    Its oil and gas division’s prospects could remain subdued in 2HFY12 as the main project pipelines (APLNG and Kebabangan) had lower GP margins versus the Gorgon project.

WASEONG’s Turkemenistan project has also been delayed to 2013 on the back of late pipes delivery.
However, 2013 prospects are expected to be better on the back of projects like North Malay Basin
(expected to be awarded within the period of end-2012 to early-2013) and the start-up of WASEONG's
pipe-coating plant in Louisiana (JV with Insituform).

Its purchase of the 26.9% stake in Petra Energy could lead to a collaboration in the manufacturing of
boilers.

The company is tentatively looking to release its 3QFY12 quarterly results on the 26th of November,
which we expect to likely come in within our expectations.


Forecast   We maintain our earnings estimates at this juncture.


Rating   Maintain OUTPERFORM


Valuation   Our target price remains unchanged at RM1.99 based on a targeted 14.0x FY13 PER (being at a 1.0x discount to the average sector PER of 15.0x given the uncertainty in the earnings).


Risks    Inability to secure more contracts going ahead.
Lower than expected margins.

Source: Kenanga