Stock Name: COASTAL
Company Name: COASTAL CONTRACTS BHD
Research House: OSK
Coastal Contracts Bhd
(April 4, RM3.41)
Maintain buy at RM3.08 with target price RM4.85: We maintain our 'buy' call on Coastal contracts for three reasons: (i) its current share price is very attractive at a price-earnings ratio of'' five times against the oil and gas industry's 12 to 14 times, which makes it an attractive takeover target; (ii) it has a strategic asset in its 40.47ha shipbuilding yard, which can be converted into an O&G facility for fabrication or even repair and maintenance jobs; and (iii) the location of the yard in Sandakan, Sabah, where most of the deepwater activities will be centred in the future.
Of course, this was considered at the end of 2008, when oil prices dropped and new orders slowed to a trickle. We see this ambition to diversify as value-adding for the company and its share price as we believe such a move would allow the stock to trade above its historical average price-earnings ratio (PER) of four to five times. Management has even made tentative moves, signing an MoU with Ramunia Holdings Bhd as well as reportedly holding talks recently with Alam Maritim Resources Bhd.
Our historical analysis shows that Coastal's performance has been consistent since the crash in crude oil price as it has been delivering quarterly results that either met or exceeded investors' expectations over the last 10 quarters.
This is in contrast to other O&G companies, whose earnings had been flat or lower quarter-on-quarter during this recovery period. We believe this gives Coastal a strong advantage in positioning the company ahead of its peers as many of them have disappointed investors in one quarter or another.
If our expectations materialise, Coastal's share price could touch our fair value of RM4.85 anytime soon, since this is based on an undemanding PER valuation of eight times FY11 earnings.
Given its impeccable track record, we do not believe Coastal's shareholders would be willing to sell its shares at the current price, which is based on a PER of five times. Hence we think this would provide further upside to its share price. ' OSK Research, April 4
This article appeared in The Edge Financial Daily, April 5, 2011.
Company Name: COASTAL CONTRACTS BHD
Research House: OSK
Coastal Contracts Bhd
(April 4, RM3.41)
Maintain buy at RM3.08 with target price RM4.85: We maintain our 'buy' call on Coastal contracts for three reasons: (i) its current share price is very attractive at a price-earnings ratio of'' five times against the oil and gas industry's 12 to 14 times, which makes it an attractive takeover target; (ii) it has a strategic asset in its 40.47ha shipbuilding yard, which can be converted into an O&G facility for fabrication or even repair and maintenance jobs; and (iii) the location of the yard in Sandakan, Sabah, where most of the deepwater activities will be centred in the future.
Of course, this was considered at the end of 2008, when oil prices dropped and new orders slowed to a trickle. We see this ambition to diversify as value-adding for the company and its share price as we believe such a move would allow the stock to trade above its historical average price-earnings ratio (PER) of four to five times. Management has even made tentative moves, signing an MoU with Ramunia Holdings Bhd as well as reportedly holding talks recently with Alam Maritim Resources Bhd.
Our historical analysis shows that Coastal's performance has been consistent since the crash in crude oil price as it has been delivering quarterly results that either met or exceeded investors' expectations over the last 10 quarters.
This is in contrast to other O&G companies, whose earnings had been flat or lower quarter-on-quarter during this recovery period. We believe this gives Coastal a strong advantage in positioning the company ahead of its peers as many of them have disappointed investors in one quarter or another.
If our expectations materialise, Coastal's share price could touch our fair value of RM4.85 anytime soon, since this is based on an undemanding PER valuation of eight times FY11 earnings.
Given its impeccable track record, we do not believe Coastal's shareholders would be willing to sell its shares at the current price, which is based on a PER of five times. Hence we think this would provide further upside to its share price. ' OSK Research, April 4
This article appeared in The Edge Financial Daily, April 5, 2011.
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