Wasco feels oil and gas heat

AFTER a blockbuster 2024, the tide may be turning for energy infrastructure provider Wasco Bhd.

The group, previously known as Wah Seong Corp Bhd and famous for its pipe-coating and pipeline fabrication solutions, achieved its best-ever financial performance last year.

This success was supported by favourable oil and gas conditions globally.

Riding on that wave, Wasco’s shares hit an all-time high of RM1.51 last June, giving it a market capitalisation of RM1.06bil.

Today, Wasco trades at around 92 sen, giving it a market value of RM708.98mil.

One concern that analysts have raised is the company’s order book replenishment.

Wasco’s group chief executive officer and executive director Giancarlo Maccagno remains upbeat, citing its solid order and tender book.

“We have sufficient breathing space because this (strong order book) will keep us going until next year,” he says.

“What we are seeing is that clients are slowing down a bit,” he adds, suggesting that market uncertainty is affecting the group.

The slowdown comes at a time when the Malaysian oil and gas sector is facing a challenging landscape.

Industry-wide, analysts are projecting the worst year in a decade as geopolitical tensions and softer oil prices prompt energy companies to delay spending.

This has led several brokerages, including CIMB Securities and Maybank Investment Bank (Maybank IB), to downgrade the sector from “overweight” to “neutral”.

Engineering takes a hit

The cautious tone is echoed across investment research circles, where analysts are already factoring in the consequences of Wasco’s slower order replenishment, particularly for its financial year 2025 (FY25) performance.

Bloomberg data shows three research houses giving the stock a “buy” call and another three having a “hold” call with a 12-month target price of RM1.32 apiece, at the time of writing.

In its latest report, RHB Research highlights that the group’s order book fell 5.9% quarter-on-quarter in the first quarter (1Q25), now standing at RM2.4bil.

While Wasco has secured notable projects such as Qatar’s North Field South and Malaysia’s Kerteh Rejuvenation pipeline, RHB points to continued delays in contract awards, a reflection of cautious client behaviour despite the group’s strong tender pipeline.

The tone turns more cautious with Kenanga Research, which draws a direct line between weak order replenishment and Wasco’s earnings potential.

“After a record FY24, we expect FY25 profit to be lower as job replenishment moderates to about RM2.5bil per year,” Kenanga notes, warning that the engineering segment, which is typically a big earnings driver for the group, could see a sharp drop-off due to the irregular nature of large-scale contracts.

It expects Wasco’s pipe coating business to remain steady, but not enough to offset the dip in engineering wins.

Kenanga adds that weak oil prices may continue to suppress contract flows throughout FY25, resulting in subdued earnings not only this year but also into FY26.

Maybank IB paints a similar picture, albeit with sharper implications. It points out that Wasco’s order book has declined for three consecutive quarters, sliding from RM3.69bil in 2Q24 to RM2.39bil in 1Q25.

The drop, it says, stems from global oil majors pulling back on capex amid a softer price environment.

In light of this, Maybank IB has trimmed its order replenishment assumptions and slashed FY25 to FY27 net profit forecasts by as much as 19%.

The concern is not just the slowdown itself, but the risk that Wasco may not register earnings growth in FY25, given the high base in FY24 and the lack of major new contract wins so far this year.

A glimpse of optimism

Still, not all analysts are sounding the alarm. Hong Leong Investment Bank (HLIB), while acknowledging the slower pace, is not entirely downbeat.

It notes that Wasco secured RM532mil in new orders in 1Q25 and maintains a healthy RM12bil tender book.

While it expects much of the replenishment in the second half of the year, HLIB believes Wasco’s RM1.5bil to RM2bil target for FY25 is within reach, reflecting a pipeline that remains fundamentally intact.

On top of that, Wasco recently established a fabrication yard in the United Arab Emirates’ Jebel Ali Free Zone, as part of efforts to deepen its capabilities.

The move aligns with the group’s ambition to strengthen its presence in the Middle East, a region it views as increasingly important for its expansion.

Acknowledging concerns that FY25 may be a quieter year, Maccagno remains confident in Wasco’s ability to stay competitive in a shifting industry landscape.

“For the last 30 to 40 years, we have always had orders coming in and capturing market share,” he says, adding that energy demand will continue to accelerate in line with a growing population.

While the slowdown is expected to have an impact on FY25, Maccagno is already looking ahead to brighter prospects in 2026.

“I think the slowdown of this quarter that we are seeing is going to affect 2025,” he says.

“It’s going to be a good year, a profitable year, but bigger than 2024? That’s going to be difficult. Don’t forget, 2024 was our best ever, almost 50% higher than 2023. That kind of profitability is hard to match,” he adds.

For Wasco, much of the optimism lies in deferred momentum. Maccagno explains that some of the projects originally anticipated this year may instead materialise towards year-end or spill over into the following year.

And on that note, he concurs with analysts’ broader view that FY26 could represent a turning point after a year of slower activity.

“Hopefully the delayed projects all come in next year. If that happens, 2026 is going to be a fantastic year,” he says with measured optimism.

While the road ahead may not match the highs of FY24, Wasco appears to be bracing itself not just for a softer FY25, but also for a possible rebound on the horizon.