Coastal Contracts Bhd (Feb 3, RM2.40)
Maintain buy at RM2.29 with target price of RM3.25: Coastal has a healthy current order book of RM610 million, sustainable till 2012. We expect operating margins to fall to pre-2009 levels of about 20%, though vessel orders should remain strong on the back of increasing investments by Petroliam Nasional Bhd and replacement demand in the face of diverging utilisation rates between old and new fleets. The recent joint venture announced on Dec 22 last year between Coastal and various parties to bid for offshore oil and gas (O&G) contracts could jump-start the company’s fabrication segment on top of greater sales in Malaysia.
Coastal’s venture into higher value offshore supply vessels (OSVs) is evident as it is constructing two subsea vessels worth US$105 million (RM316 million) involved in pipe and platform servicing, to be completed in end-2013. Indonesia will be a key driver for Coastal, as we understand the company is venturing into the floating production, storage and offloading (FPSO) and LNG segments to tap into upstream markets. Coastal is tendering for a 20-year FPSO contract in Indonesia with a contract value that could potentially quadruple its existing order book. On the LNG front, Coastal is looking into a similar long contract but both will be mutually exclusive due to capital constraints. The company will likely seek debt (net cash position) and capital markets for financing.
Coastal’s FY12F price-earnings ratio of six times is unjustified against the regional average of 16 times. It remains a prime candidate for privatisation, considering its strong track record in performance delivery. The stock is supported by persistently high crude oil prices (hovering near US$96 per barrel) and offers a cheap proxy for the strong correlation. — HwangDBS Vickers Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
Maintain buy at RM2.29 with target price of RM3.25: Coastal has a healthy current order book of RM610 million, sustainable till 2012. We expect operating margins to fall to pre-2009 levels of about 20%, though vessel orders should remain strong on the back of increasing investments by Petroliam Nasional Bhd and replacement demand in the face of diverging utilisation rates between old and new fleets. The recent joint venture announced on Dec 22 last year between Coastal and various parties to bid for offshore oil and gas (O&G) contracts could jump-start the company’s fabrication segment on top of greater sales in Malaysia.
Coastal’s venture into higher value offshore supply vessels (OSVs) is evident as it is constructing two subsea vessels worth US$105 million (RM316 million) involved in pipe and platform servicing, to be completed in end-2013. Indonesia will be a key driver for Coastal, as we understand the company is venturing into the floating production, storage and offloading (FPSO) and LNG segments to tap into upstream markets. Coastal is tendering for a 20-year FPSO contract in Indonesia with a contract value that could potentially quadruple its existing order book. On the LNG front, Coastal is looking into a similar long contract but both will be mutually exclusive due to capital constraints. The company will likely seek debt (net cash position) and capital markets for financing.
Coastal’s FY12F price-earnings ratio of six times is unjustified against the regional average of 16 times. It remains a prime candidate for privatisation, considering its strong track record in performance delivery. The stock is supported by persistently high crude oil prices (hovering near US$96 per barrel) and offers a cheap proxy for the strong correlation. — HwangDBS Vickers Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
