Stock Name: COASTAL
Company Name: COASTAL CONTRACTS BHD
Research House: AMMB
Coastal Contracts Bhd
(April 12, RM3.40)
Maintain hold at RM3.42 with fair value of RM3.35: Coastal Contracts has secured the sale of 11 twin-screw tugboats worth RM61 million to a buyer based in Central America. Nine units are powered by 2,400 BHP (brake horse power) engines and are between 29m and 30m in length. One unit is 26m in length of close to 1,650 BHP, while the remaining unit is of the 24m and 1,200 BHP class.
The revenue from these vessel sales will be mostly recognised this year. These tugs, which are widely deployed for both harbour and coastal use, will unlikely be employed in the oil and gas industry, which uses higher premium anchor-handling tugs with higher safety specifications and engine capacities.
On average, these twin-screw tugboats are worth below US$2 million (RM6.06 million) per unit, while a 5,000 BHP anchor handling tug and supply vessel is priced at US$12 million to US$15 million each. As such, we expect the pre-tax margins from the sale of these vessels to be lower than the 30% registered by Coastal's shipbuilding segment in FY10.
With the fresh tugboat sales, Coastal's outstanding order book has risen by 10% to RM665 million currently ' which is expected to be recognised until FY12F.
As this represents only one time FY11F revenue, we maintain FY11F to FY13F earnings for now.
The recent ODS Petrodata conference indicated that charter rates for anchor handling tugs and platform supply vessels are only expected to improve towards end-FY12F and end-FY13F respectively, given that an estimated 400 vessels are expected to be delivered globally over the next two to three years.
As such, we do not expect a significant increase in additional vessel sales this year despite Coastal securing cumulative sales of RM329 million to date this year, which translates into 50% of FY11F revenue.
While the group hopes to venture into fabrication of oil and gas structures, this hinges on Coastal's proposed joint-ventures or potential merger with a licensed domestic operator. But these M&A plans are currently at an exploratory stage with no firm commitments from any parties.
Coastal currently trades at an FY11F price-earnings ratio (PER) of six times, which is at a 50% premium to the group's three-year average of four times.
Hence, we maintain our 'hold' call on Coastal with an unchanged fair value of RM3.35 based on FY11F PER of six times, at parity to its seven-year average. ' AmResearch, April 12
This article appeared in The Edge Financial Daily, April 13, 2011.
Company Name: COASTAL CONTRACTS BHD
Research House: AMMB
Coastal Contracts Bhd
(April 12, RM3.40)
Maintain hold at RM3.42 with fair value of RM3.35: Coastal Contracts has secured the sale of 11 twin-screw tugboats worth RM61 million to a buyer based in Central America. Nine units are powered by 2,400 BHP (brake horse power) engines and are between 29m and 30m in length. One unit is 26m in length of close to 1,650 BHP, while the remaining unit is of the 24m and 1,200 BHP class.
The revenue from these vessel sales will be mostly recognised this year. These tugs, which are widely deployed for both harbour and coastal use, will unlikely be employed in the oil and gas industry, which uses higher premium anchor-handling tugs with higher safety specifications and engine capacities.
On average, these twin-screw tugboats are worth below US$2 million (RM6.06 million) per unit, while a 5,000 BHP anchor handling tug and supply vessel is priced at US$12 million to US$15 million each. As such, we expect the pre-tax margins from the sale of these vessels to be lower than the 30% registered by Coastal's shipbuilding segment in FY10.
With the fresh tugboat sales, Coastal's outstanding order book has risen by 10% to RM665 million currently ' which is expected to be recognised until FY12F.
As this represents only one time FY11F revenue, we maintain FY11F to FY13F earnings for now.
The recent ODS Petrodata conference indicated that charter rates for anchor handling tugs and platform supply vessels are only expected to improve towards end-FY12F and end-FY13F respectively, given that an estimated 400 vessels are expected to be delivered globally over the next two to three years.
As such, we do not expect a significant increase in additional vessel sales this year despite Coastal securing cumulative sales of RM329 million to date this year, which translates into 50% of FY11F revenue.
While the group hopes to venture into fabrication of oil and gas structures, this hinges on Coastal's proposed joint-ventures or potential merger with a licensed domestic operator. But these M&A plans are currently at an exploratory stage with no firm commitments from any parties.
Coastal currently trades at an FY11F price-earnings ratio (PER) of six times, which is at a 50% premium to the group's three-year average of four times.
Hence, we maintain our 'hold' call on Coastal with an unchanged fair value of RM3.35 based on FY11F PER of six times, at parity to its seven-year average. ' AmResearch, April 12
This article appeared in The Edge Financial Daily, April 13, 2011.
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