HLG: Coastal Contracts - H108 results in-line with forecast (26 August 2008)

Coastal Contracts Berhad BUY



Price target RM3.80



Share price at 25 Aug RM2.20



Investment summary


H108 results were in-line with HLG/consensus estimate, re-affirming our BUY rating on the stock. We maintain our PT at RM3.80/share and remain bullish on the stock: (1) current order book at RM1,3bn will drive 32% earnings growth pa over FY07-10E, in our view (2) PE valuation at 8x and 6x for FY08-09E respectively is 25-30% discount to regional shipbuilders (3) news flow on vessel sales in H208 could surprise market on the upside and provide re-rating catalyst.

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.



Orders could surprise

H108 earnings grew +23% yoy due to more vessels delivered. Record-high order book will drive 32% earnings growth pa over FY07-10E. We see little downside risk at current level and share price is attractive at 6x FY09E EPS. New vessel sales could surprise on the upside in H208.