WASCO: Improved Margins and Orderbook Replenishment Drive Earnings Recovery
| Investment Bank | PUBLIC INVESTMENT BANK |
|---|---|
| TP (Target Price) | RM0.98 (+7.1%) |
| Last Traded | RM0.915 |
| Recommendation | Neutral |
The latest financial results reveal a significant uplift in core earnings, largely attributed to enhanced project margins and a substantial replenishment of its order book. While third-quarter revenue saw a slight dip, the company’s strategic focus on cost efficiencies and a favourable project mix helped surpass internal expectations, signaling a potential for earnings recovery.
Performance Review
For the third quarter of FY2025 (3QFY25), core Profit After Tax And Minority Interest (PATAMI) surged by 37.1% quarter-on-quarter to RM25.0 million. This robust performance was primarily driven by improved margins stemming from a more favourable project mix. On a year-on-year basis, however, earnings experienced a 15.0% decline, a consequence of slower progress billings and a comparatively lower orderbook against the previous year.
The nine-month FY2025 (9MFY25) core PATAMI reached RM72.3 million, exceeding Public Investment Bank’s expectations by achieving 82.5% of its full-year estimates. However, this figure remained below consensus estimates, which stood at 68.5% of full-year projections. The outperformance against the bank’s estimates was mainly due to better-than-expected margin delivery across its operations.
Within the energy services segment, margins expanded to 7% in 3QFY25, a 1.4 percentage point increase quarter-on-quarter. This was attributed to a more favourable project mix, enhancing segmental profitability by 4.4%. Revenue distribution for the quarter was evenly split between pipeline and engineering subsegments. The bioenergy segment, however, recorded lower revenue of RM72.3 million in 3QFY25, an 11.3% year-on-year decrease, mainly due to fewer equipment deliveries.
Order Book & Project Progress
Orderbook replenishment saw a positive turn with RM944 million secured in 3QFY25, breaking a four-quarter streak of subdued contract awards that averaged RM378 million per quarter. This significant influx boosted the total orderbook to RM2.6 billion, providing a solid foundation for future revenue.
Key pipeline projects, such as the East African Crude Oil Pipeline (EACOP), achieved 94% revenue recognition, while the Schneider EACOP progressed to 86%. In the engineering domain, major projects including Sulzer Chemtech (65% completion) and Middle East substations (53% acceleration) continued to advance steadily. The bioenergy segment also reported the sale of 62 turbine units year-to-date, which are expected to contribute to upcoming quarter recognitions, further offsetting lower boiler projects secured. The segment continues to benefit from recurring Operations & Maintenance (O&M) income from its 316 installed turbine units, with demand for biomass-steam systems remaining strong across regional processing industries.
Future Outlook and Recommendation
Public Investment Bank has upgraded its recommendation for the stock to , raising the 12-month target price to RM0.98 (from RM0.81 previously). This new target price is based on a higher 8.1x PER, representing a one standard deviation above its 12-month rolling 3-year mean. The upgrade reflects the analyst’s view on the potential for an earnings recovery, supported by the recent order book improvements and strategic initiatives. Furthermore, the strategic rationale for potentially listing its renewable-energy arm, Wasco Greenergy, with IPO proceeds aimed at accelerating growth and expanding its clean-energy portfolio, adds to the positive outlook.
