ECM Libra Investment Research has maintained its hold recommendation on Wah Seong Corporation Bhd at RM1.45 with a target price of RM1.55, saying that the company has positioned itself well against the current economic crisis and low oil prices.

It said the oil and gas company has a solid RM1.4 billion order book, with half of it in the pipe segment, and that cost cutting measures had been implemented widely within the  group as it continued bidding for jobs to ensure steady contract flows.

“They noted that many contracts were being re-tendered by oil majors hence are taking some time to be announced. Of contracts, most onshore developments and shallow water developments continue despite current oil prices, as cost of production is low in these areas.

“We expect that the re-tendering will likely result in slightly lower revenues and bottom line in 2010 into 2011, but margins are expected to hold given the group’s cost-down efforts,” it said.

ECM Libra said as for FY09, numbers would be supported from the RM390 million SSGP (Sabah Sarawak Gas Pipeline) contract, as well as the Gemusut-Kakap contract.

“We have imputed a contraction in earnings due to conservative expectations on the group’s industrial services and gas compression segments,” it said.

The research house said that of late, there had been plenty of ICULS (irredeemable convertible unsecured loan stocks), hence it had included the outstanding ICULS and now report a fully diluted share base for its earnings per share (EPS) computation.

“To note, there are some 94 million of ICULS outstanding and the likely reason for the active conversion is that the group’s dividend yield has risen of late and now exceeds the 3% earned on ICULS.

“We also move Wah Seong into a discounted cash flow-based valuation similar to other oil and gas stocks under our coverage and derive a target price of RM1.55 using a WACC (weighted average capital cost) of 7.5% and share base of 770 million shares, hence maintaining our hold call. We have not accounted for warrants outstanding, as the conversion price is RM3.17,” it said.

Last Friday, Wah Seong added two sen to close at RM1.47.