Coastal Contracts

Coastal Contracts: "Coastal’s 2QFY09 results were above expectations, mainly due to the higher number of offshore support vessels (OSV) delivered in the current quarter. Its strong orderbook of RM1.55bn has kept the company busy although its orderbook replenishment stood at only RM17m in 1H09. Furthermore, we believe the recent RM70m contract award by a customer to build 2 offshore support vessels and 1 tugboat is a signal of jobs starting to flow into the shipbuilding O&G segment. Maintain Buy.

Above expectation. Coastal’s 2QFY09 results were within consensus but above our expectations, making up 55% and 57% of the FY09 forecasts respectively. The good results were mainly contributed by its strong orderbook, which had proven to keep the company busy although its orderbook replenishment only amounted to RM17m in 1H09, barely making up 1% of its total existing orders. Having said that, the 2QFY09 revenue surged 18.4% q-o-q to RM94.9m, mainly due to the higher number of offshore support vessels (OSV) delivered in the current quarter. This improvement haS filtered down to the bottom line, boosting its 2QFY09 net profit by 18.7% q-o-q to RM33.0m. Also, there was AN EBIT margin improvement of 1%-pts q-o-q and 9%-pts YTD on the building of higher margin vessels such as the OSVs compared to tug boats and barges. OSVs’ gross margin are between 20% and 30% while that for tug boats and barges range from 10%- 15%. With that, the 6MFY09 net profit of RM60.7m was also up 41.8% YTD.

Strong orderbook of RM1.55bn. This should keep the company busy over the next 3 years, assuming that its annual burn rate is between RM400m and RM500m. Furthermore, with the recovery in the O&G industry, the demand for AHTS should come back and should benefit Coastal as the contracts to build this type of vessel would yield higher margins of above 30%.

Maintain Buy. We are upgrading our FY09-10 earnings forecasts by 11%-14% in line with the improved prospects in the O&G industry. Hence, our target price is also upgraded to RM2.84 (previously RM2.50) based on a PER of 8x FY10 earnings. We believe Coastal’s strength lies in its strong orderbook, which is of course due to its capability in building good vessels. Also, the recent RM70m contract award by a customer to build 2 offshore support vessels and 1 tugboat may signal the start of a flow of jobs for the shipbuilding O&G segment.

52 week H | L Price (RM) 2.37 0.79


Major Shareholders (%)
Ivory Asia Sdn Bhd 31.49
Ng Chin Heng 26.92

Coastal Contracts’ principal activities are shipbuilding and vessel chartering.

By OSK188
Analyst: Jason Yap

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