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Wah Seong in talks to buy firm in W. Africa

Published on 2010-03-17. Author : SpecialChem

PETALING JAYA -- Wah Seong Corp Bhd is in negotiations with The Orleans Group of West Africa, as it is interested in acquiring Orleans' strategic partner, Socotherm, for its pipe-coating business in Nigeria.

Wah Seong anticipates a hive of activity in gas field developments, gas distribution, and deepwater field exploration and development. "West Africa is a strategic region for oil and gas service providers like Wah Seong. It sees great opportunities in that market for its business, in particular the deepwater oil and gas segment," a source said. Originally, Orleans and Socotherm had a 40:60 pipe-coating joint venture in West Africa.

In December last year, Orleans bought over Socotherm's 60% interest. Having acquired 100% of Socotherm's pipe-coating assets, OSK Research said, Orleans would soon sell them to Wah Seong. "A new joint-venture company would be set up and Wah Seong would then lease these assets back to the joint-venture company," OSK said.

In the meantime, the source said that Wah Seong was actively evaluating merger and acquisition (M&A) targets, particularly those that complement its core business in pipe coating or engineering. It is also looking for businesses with recurring income. Wah Seong's internal long-term target is to grow its business by 25% - or 15% if via M&A. The company's orderbook currently stands at RM1.4bil with a burn rate of RM400mil to RM500mil a year. "Based on the company's experience, the orderbook has fluctuated between RM1bil and RM2bil. Wah Seong is currently bidding at a much higher rate of RM5.3bil and at this volume, the company is confident of maintaining a healthy orderbook size," the source said. OSK continues to like Wah Seong for its M&A news flow as well as for its commanding market leadership in the pipe-coating business in Asia. It maintains a "buy" rating with a RM3.35 target based on a price/earnings ratio of 14 times financial year 2010 earnings.

"We like the company's market leadership in the provision of pipe coating and corrosion protection in Asia as well as its potential in taking over the number two world ranking from Socotherm. With Socotherm in the picture, Wah Seong will gain access to key oil and gas markets like Europe, South America, Africa and Australia, where Socotherm has a reputable standing. In the first half of 2009, Socotherm - which filed for creditor protection in August last year - reported a net loss of 57.2 million euros, widening from 14.9 million euros a year earlier, with sales of 84.2 million euros, down 42.1%. Socotherm shares have been suspended from trading since the start of August. It is now undergoing a debt restructuring exercise.

Source: Wah Seong Corporation Berhad


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