Hot Stock Coastal climbs 4% on 6 vessel contracts sales

by **Cals** Tue 22 Oct 2013, 12:11

Hot Stock Coastal climbs 4% on 6 vessel contracts sales

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Tuesday, 22 October 2013 11:35

KUALA LUMPUR (Oct 22): Coastal Contracts Bhd saw its shares climb 4% or 12 sen to a morning trade high of RM3.10 on Tuesday after it announced yesterday that it had secured contracts for the sale of six units of offshore support vessels amounting to circa RM318 million.
At 11.14 am, Coastal up 12 sen or 4% to RM3.10 on trades of some 1.7 million shares. It was the sixth top gainer.
In a note today, Kenanga Research said these new contracts boosted Coastal’s order book to an estimated RM1.35 billion, which elevated its vessel sales to a new record high.
Kenanga research analyst Cezzane See said the year to date 2013 total vessel sale of RM1.35 billion is almost double the amount achieved last year of RM698 million.
“We maintain ‘outperform’ for the ship builder’s stock at RM2.98 with unchanged target price (TP) of RM3.87 based on a target CY14 price earnings ratio (PER) of 12 times,” said See.
She said TP was at a 15% discount to the CY14 PER of 14 times ascribed to industry peer, Perisai Petroleum Teknologi Bhd.
“The PER valuation may seem high for Coastal given that its five year average of +2 standard deviation level is only at 10.1 times,” said See.
“However, the valuation upgrade is for its potential new earnings streams and its strategic evolvement into an offshore asset owner.”
See said with Coastal’s maiden jack-up rig due to be delivered in middle of next year, it would spearhead its move into asset ownership versus the previous build and sell model.
She elaborated that according to her channel checks, there were more than 40 jack-up rig contracts in Southeast Asia that are expiring from middle of this year to 2015.
Given the abundant opportunities, she said it was likely for Coastal to secure more contracts.
In addition, See said she maintained her FY13E and FY14E net profit forecasts at this juncture.
Meanwhile, RHB Investment Bank Bhd said it retained its ‘neutral’ call on Coastal with a fair value of RM3.00.
The research house said management has yet to secure a contract for its US$200 million (RM641 million) jack-up rig slated for delivery in 2H14.
It added that any re-rating catalyst would depend on Coastal’s success in securing its maiden jack-up rig contract.