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BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Wednesday, 4 July, 2012

Company Update

Wah Seong
Details Out
Stock Data Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant WSC MK 1,487.8 Equity 757.3 2.43 1.79 0.4 41.53% Y Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders Wah Seong (M) KWAP Midvest Asia S/B 2.5 -7.2% 5.0% 0.8 32.7% 5.0% 4.9%

Trading Buy
Price: RM1.92 Target Price: RM2.28 Subsequent to its successful bid for the 26.9% stake in Price:
Petra Energy (PE) from Perdana Petroleum (PP), Wah Seong has announced the pricing details of the deal at RM1.68 per share, or a 5.5% premium over PEs net asset value. While we are positive on this deal as a way of earnings base diversification, we are less sanguine on the on-going USD25m Atama Resources deal, as the operating risk is high. Overall, with its balance sheets improvement over the last few years, we foresee no significant (if any) credit metrics deterioration from these deals. However, reservations over the groups further investment requirements could create some uncertainty over the Groups credit profile. Maintain our forecast and Trading Buy call at target price of RM2.28. Slightly lower than previously indicated. The purchase price of RM1.68 is slightly lower than the indicative price of RM1.70 and represents a mild premium of 5.5% against PEs net asset value. The total gross purchase consideration of RM96.9m is digestible even after we factored in Wah Seongs early investment commitment in Atama Resources of USD25m, considering its strong liquidity level with cash holding of about RM580m and balance sheet flexibility which has strengthened over the past few years. Pending PPs shareholders approval, the transaction is expected to be closed in 3QFY12. Diversified earnings base/risk. We reckon this acquisition by Wah Seong will allow it to entrench its business within the oil and gas value chain, considering PEs strong exposures particularly in brownfield services segment. This transaction may also allow Wah Seong to diversify its earnings base and risk as most of its current oil and gas businesses are relying heavily on one-off contract which is susceptible to contract delay and industry contraction. As a second largest shareholder, we expect the Group to have at least a representative in PEs board. Nevertheless, we are less sanguine on its USD25m investment in Atama Resources given the high operating risk involved in developing a greenfield plantation asset in a country that inherited high political risk. No change in forecast. Pending the deal, we made no change to our numbers. For illustrative purposes, based on street estimates, the deal could marginally boost Wah Seongs bottomline by RM5m in FY13. Valuation & Recommendation. We maintained our Trading Buy call on the counter with target price of RM2.28 based on PER of 15x on FY12 EPS of 15.2sen.

Share Performance (%) Absolute vs. KLCI Financial Highlights FYE 31 Dec 2009 Turnover 1,950.3 (RMm) EBIT 280.9 Pretax profit 245.8 Core Net Profit 121.3 EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Core EPS (sen) Core EPS growth PER (%) (x) DPS (sen) Div. Yield (%) NTA/share (RM) Growth ratios Turnover EBIT Pretax profit Core Net profit Share Price Chart 14.4% 12.6% -16.1% 13.7% 9.3% 0.27 16.0 29.4% 12.0 5.0 2.6% 1.20

1mth 4.3% 0.9%

3mth -6.3% -6.8%

12mth -16.9% -20.6%

2010 1,523.4 113.8 86.2 56.0 7.5% 5.7% -24.6% 6.0% 3.2% 0.25 7.4 -53.9% 26.0 4.3 2.3% 1.23

2011 1,889.1 209.5 173.3 110.4 11.1% 9.2% -24.3% 11.0% 5.7% 0.21 14.6 97.2% 13.2 6.0 3.1% 1.30

2012E 2,012.3 204.3 174.3 115.0 10.2% 8.7% -22.0% 10.7% 5.6% 0.17 15.2 4.2% 12.6 6.8 3.6% 1.40

2013E 2,268.3 226.3 198.3 130.9 10.0% 8.7% -22.0% 11.4% 6.0% 0.25 17.3 13.8% 11.1 7.8 4.1% 1.50

-16.8% 80.4% 87.5% 29.4%

-21.9% -59.5% -64.9% -53.9%

24.0% 84.1% 101.1% 97.2%

6.5% -2.5% 0.6% 4.2%

12.7% 10.8% 13.8% 13.8%

Chiong Tong Chai chiongtc@bimbsec.com.my 03-26918887 ext 175

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4 July 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Company Update: Wah Seong

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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