Published April 21, 2009

Wah Seong targets foreign purchase

It is counting on buys in Asia and North America to boost revenue

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(KUALA LUMPUR) Wah Seong Corp, Malaysia's third-biggest oil and gas services provider, plans an overseas acquisition in the second half that would increase sales by 20 per cent following a slump in asset prices.

'It was very hard to see what was actually good in a company when everybody was enjoying high demand.' - Mr Maccagno

'We are seeing valuations coming down,' deputy group managing director Giancarlo Maccagno said in an interview on April 17. 'We have started some discussions with some bankers for some potential acquisitions - it has to be sizeable.'

Wah Seong, based in Kuala Lumpur, is counting on purchases in Asia and North America to boost revenue to US$1 billion by 2012, up more than 50 per cent from last year. The maker of oil pipes and pipe coating spent about RM200 million (S$83.3 million) buying companies in 2004 and 2005.

Shares of Wah Seong, which counts Chevron Corp, BP Plc, Murphy Oil Corp and Royal Dutch Shell Plc among its customers, have surged 52 per cent this year, more than the 9.4 per cent gain in the benchmark Composite Index. Wah Seong is the fifth-best performer on the index.

The company posted a 34 per cent increase in profit to RM115.60 million in 2008, as revenue climbed 22 per cent to RM2.34 billion.

'Valuations are attractive now, so it's a good time to buy,' said Jason Yap, an analyst at OSK Research Sdn here. Any acquisition 'should give an enhancement to the company', he said. OSK has a 'buy' rating with a target price of RM1.93 for Wah Seong.

Before the global recession, Wah Seong had difficulty identifying acquisitions as potential targets were expensive, with companies valuing themselves at a price-to-earnings ratio of about 20 times, said Mr Maccagno, 45.

Prices have fallen to about five times, he said. 'It was very hard to see what was actually good in a company when everybody was enjoying high demand,' he said. 'During a typhoon, even a turkey could fly. And there were a lot of turkeys.'

Revenue needs to grow 25 per cent each year to meet Wah Seong's US$1 billion revenue target, he said. 'Next year, you may see some big impact on the revenue due to acquisitions,' he said.

A purchase will 'bring up the revenue by 20 per cent'. Wah Seong, which owns the world's biggest pipe-coating plant, competes with Bredero Shaw Ltd and Socotherm SpA, based in Italy.

Crude oil prices have fallen more than 60 per cent to US$49.45 a barrel in New York from a record US$147.27 a barrel in July.

The company, with orders of RM1.4 billion in hand, has submitted pipe-coating bids for the Chevron-led Gorgon liquefied natural gas (LNG) project in Australia and the Exxon-led Papua New Guinea LNG development, he said.

He expects a decision on the Gorgon project before August and the one in Papua New Guinea by the third quarter of the year, he said.

The two are part of US$3.31 billion of pipe-coating contracts up for bids over the next four years, he said. Larger oil companies are continuing with their spending even as crude oil declines, he said.

'If you look at the major oil companies, those people are not cutting back,' Mr Maccagno said. 'It tells me that energy is still the sector to be in.' - Bloomberg