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Tuesday, November 25, 2014

Coastal 'outperform'


By Kenanga Research
Outperform (maintain)
Target price: RM4.67
COASTAL Contracts Bhd’s net profit of RM54.3mil for the third quarter ended Sept 30, 2014 brought nine-month net profit to RM151.7mil, which Kenanga Research said was within its and consensus’ full-year forecasts at 76.5% and 78.2% respectively.
Quarter-on-quarter and year-on-year net profit increased mainly due to better product mix, which saw margins from the shipbuilding segment firm up to 23.5% in the third quarter, compared with 20.5% in the second quarter and 20.3% a year ago.
Year-to-date, net profit was 47.8% higher backed by a 38.1% increase in revenue, which was attributed to higher vessel sales and better product mix.
The research house said Coastal Contracts’ order book stood at RM2.5bil, of which RM1.3bil was for shipbuilding and the remainder for the gas compression service unit in Mexico that would kickstart in the financial year ending Dec 31, 2015.
It said the company was waiting for two high-specification jack-up rigs due in the first and second half of 2015, which had not yet secured any contracts.
However, Kenanga Research added that Coastal Contracts’ management was working to close some contract deals soon, adding that these assets would spearhead the company’s move into an asset-ownership model versus the previous build-and-sell model.
It said there were more than 40 jack-up rig contracts in South-East Asia expiring from mid-2013 to 2015, which implied there were abundant opportunities.
It added that there could also be cross-selling opportunities with its entry into Mexico.

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