WASCO: Earnings Beat Expectations on Cost Efficiencies, Target Price Raised

A leading industry player has reported a significantly stronger-than-expected performance, particularly for the fourth quarter of its financial year 2025 (4QFY25). The company’s core PATAMI (Profit After Tax and Minority Interest) surged by 135.5% quarter-on-quarter to RM58.9 million, surpassing both internal and consensus forecasts.

Performance Review

While the full-year core PATAMI for FY25 saw a 25.5% year-on-year decline to RM131.2 million, this figure still exceeded market expectations, largely attributed to better-than-anticipated margins. The robust 4QFY25 performance was primarily driven by an improved margin contribution from its Energy Services segment. This improvement stemmed from a favorable project mix, with a skew towards higher-margin fabrication and engineering modules, coupled with a stronger execution momentum.

The company also benefited from an increasing contribution from energy transition and green projects, which accounted for 51% of the order book in 4QFY25, up from 35% in the preceding quarter. This shift indicates a greater focus on engineering-heavy works, which typically command better margins. Despite these positive developments, some caution remains regarding the sustainability of these elevated margins given the milestone-driven nature of earnings and historical comparability with traditional pipeline work.

Future Prospects and Financial Strength

Looking ahead, the company’s prospects into FY26 are robustly supported by a substantial RM2.8 billion order book and a sizeable RM12-13 billion tender book. This provides significant earnings visibility, despite the cyclical nature inherent in project execution. Management has highlighted ongoing activity across key segments including engineering modules, substations, FPSO-related works, and pipeline services in Malaysia and Qatar, emphasizing a disciplined project selection approach to preserve margins.

Financially, the company reported a net cash position of RM49.2 million. Management clarified that this is not intended as a structural cash position but rather provides enhanced financial flexibility. This flexibility supports growth opportunities, capital expenditure, and selective investments, while also underpinning a sustainable dividend policy, as evidenced by the 7.0 sen total dividend declared for FY25.

Analyst’s View

Given the stronger-than-expected financial performance, particularly the impressive 4QFY25 results driven by improved margins and strategic project execution, an investment bank has revised its outlook. Acknowledging the company’s solid order book and prudent management strategy, the investment bank has decided to increase its target price and issued a BUY recommendation. While potential earnings volatility and the normalization of margins remain factors to monitor, the current valuation reflects confidence in the company’s ability to capitalize on its strategic positioning.