Bags EACOP’s USD254m contract; Qatar next?
Maintain BUY and MYR1.20 TP
We are positively surprised by this big EACOP contract win. It elevates WSC’s order backlog by 65%, improves visibility over 3 years and will be a key feature to earnings (with Qatar ops). WSC is entrenched to ride the upcycle energy play. Valuations are undemanding, should WSC deliver to its expectation. Our TP is based on 10x FY22 PER (unchanged).
Salient details of the EACOP job
WSC, via its ISOAF S.r.L indirect subsidiary has been awarded a midstream contract worth USD254.1m (MYR1.1b) by EAST AFRICAN CRUDE OIL PIPELINE (EACOP) Ltd for the provision of line pipe thermal insulation services for the EACOP Project and Feeder Line. The project is located between the town of Kabaale, Uganda and the port of Tanga, Tanzania. WSC’s works and services for this project will take about 30 months to complete and are expected to be handed over by Aug 2024. The entire EASOP project (encompassing 1,443km of heated oil pipeline) is about USD3.5b. WSC’s contract portion makes up 7% of the total investment.
A major positive surprise
We understand that WSC beat three bidders for this job. This: (i) is a very sizeable contract win for WSC, arguably among its single largest job wins (after NordStream2; NS2: EUR600m @MYR2.8b), (ii) equates to 66% of its order backlog (MYR1.7b @ Sep 2021) and (iii) elevates its order backlog by 65% to MYR2.8b (peak: MYR3.8b in 2017). Earnings-wise, we expect WSC to make about MYR55m-MYR88m in net profit from this project, based on net profit margin of 5-8%, which will be reflected in FY22-24. Majority of that will be back-loaded in the final 24 months. Our estimates are unchanged, incorporating MYR2b-3b job wins in FY22-24.
Qatar ops will drive optimism further
After EACOP, Qatar will be another key feature to the Group. Securing new orders from there on a constant basis (over the next 36 months) will be a catalyst, for it will offer similar earnings impact to the NS2 project. The Qatar ops alone could potentially offer WSC a cumulative MYR180m net profit over 4 years (2021-24).