HLG: 23 May 2008 Coastal Contracts

HLG: 23 May 2008 Coastal Contracts - Q108 earnings within expectation

Coastal Contracts BUY



Price target RM3.80



Share price at 22 May RM2.38



Investment summary


Reported Q108 net profit of RM21m was in-line with HLG forecast and market estimate. The strong results re-affirm our BUY rating on Coastal. The company has transformed into a serious offshore support vessel (OSV) builder in the region; outstanding order book has more than doubled to RM1.1bn in the last 12 months. We remain bullish on the stock and thinks share price is grossly undervalued at 7x FY09E EPS. We are positive on the offshore support vessel industry because: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.



Cheap at 7x FY09 PE

Q108 net profit (+38% yoy) was in-line with our estimate, mainly due to higher shipbuilding revenue. We think share price is attractive at 7x FY09E PE. RM1.1bn outstanding order book provides strong earnings visibility over the next two years.