Coastal Contracts - A new quarter, a new record (Results Note)
Price: RM2.38
Target Price: RM3.48
Recommendation: BUY
· Record quarterly revenue and net profit which is in line with expectations. Reported revenue of RM90.9m is 24.7% of our full year's forecast while net profit of RM21.0m is 25%. Continuing strong demand for offshore vessel and on time delivery backed by a strong execution track record had underpinned the current strong set of interim.
· QoQ, revenue was up by 11.2% to RM90.9m despite the record number achieved in 4Q07. Net profit meanwhile was up a stronger 23.4% due to a combination of higher specifications delivery and an overall bullish environment for offshore vessels. For the quarter, we believe that the company had delivered 15 tugs/barges and 1 offshore support vessel versus 10 tugs/barges and 1 offshore support. A special point to note is that pricing for offshore vessels that are being delivered within the next few quarters are very likely to have been signed in late 2006 or early 2007 which therefore might not be reflective of the higher prices that we are experiencing at the moment. Going forward, there is potential for the company to be reporting vessels sales of higher values due to the buoyant environment.
· YoY, revenue was up 32.8% while net was higher at 38.5%, boosted by lower effective taxes. The better performance is underpinned by a more aggressive delivery in 1Q08 of 16 vessels (15 tugs/barges and 1 offshore support) versus 10 in 1Q07 (9 tugs/barges and 1 offshore support).
· Margins have continued to stay strong despite an overall higher cost environment. Concerns of a potential margin squeeze are unfounded as evidenced by the current strong set of interims. Management have always guided that due to the current strong demand for vessels, higher costs including steel plates etc are passed on with minimal resistance. With record high prices and E&P activity, margins are very likely to remain intact for the near to medium term. A point to note is that specifications for all its vessels even the normal tugs/barges are moving up which could translate into higher sales value and hence earnings in the near to medium term.
· Forecast and recommendation is maintained. As the results are within expectations, we are therefore maintaining our forecast for the time being. Currently trading at a lowly 10.3x current year's earnings which is a discount to the peer average of 16x is we believe unjustified. Strong earnings visibility of up to 2010 with order book of RM1.2billion back by a strong management team with hands-on experience are key drivers behind our BUY recommendation. Further rerating catalysts should include higher order book and possibly partnership with large operators to be part of the latter's fleet renewal program. BUY with target price of RM3.48 maintained.
KENANGA INVESTMENT BANK BERHAD (15678-H)
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Showing posts with label Coastal. Show all posts
Showing posts with label Coastal. Show all posts
Saturday, 21 June 2008
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.
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.
Saturday, 7 June 2008
Coastal - BUY - 16 May 2008
Coastal Contracts - Order book surpasses RM1 billion mark (Company Update)
Price: RM2.37
Target Price: RM3.48
Recommendation: BUY
· Company announced that it has secured the sale of 2 offshore support vessel via its subsidiary - Thaumas Marine Ltd for USD62 million (RM201.5m) or RM100.8m each which according to our records should be the most valuable contract per vessel for the company. With this sale, the company's order book is now at RM1.2 billion with delivery stretching up to 2010.
· Record selling price per vessel. While details of the two vessels are not revealed including its buyer, but given the high selling price of at least RM100m each lead us to believe that it could be at least 70m in length with engine capacity of 10,000 bhp. Delivery is slated for 2010.
· Recall that in October last year when the record RM365m deal was announced for the delivery of 4 vessels including two 70m x 10,880 bhp AHTS, those two vessels based on our estimates have a price tag of RM97m each. Should these two to be of similar specifications, prices of the vessels would have improved by an additional 3.9%.
· Order book now at RM1.2billion after having secured RM518m during the first 5 months of the year. With such a high order book stretching up to 2010, earnings visibility likewise will be high. Based on our cumulative sales forecast of RM1.26billion between 2008-2010, company has already achieved some 95% of our forecast for the coming three years!
· We are very positive with the deal. Besides the headline numbers, what really impressed us was the fact that company's reputation as a world-class offshore support vessel builder is firmly entrenched especially in the bigger type vessels including the 10,000 bhp category. Previous skepticism of the company being restricted to building the smaller vessel type namely the 5,000 bhp and below should be clearly expounded now with this current deal. We believe that company's growing reputation especially in the higher class vessels where demand is expected to increase further on the back of a shift of exploratory work towards the deeper waters globally should be a boon for the company.
· Not resting on laurels. Even with the record orders, management we gathered is working extremely hard to continue to add to their order book. As guided much earlier, time and resources are now trained on growing their order book even beyond 2010!
· Yesterday's announcement on the yard acquisition is timely, as its original yard of 17 acres is already filled to the brim with work orders. Meanwhile, our sources have indicated that talks with a major offshore support vessel owner remain on track which if successful can potentially open up new market for the company's vessels.
· Forecast and recommendation unchanged. BUY is maintained. With delivery slated for 2010, impact therefore will be in FY10. Based on a conservative net margin of 20%, the RM201m deal is expected to generate some RM40m in net profit or 11sen EPS. High order visibility, strong management and an undemanding valuation of 10x for current year's earnings are key drivers for our BUY recommendation. Our target price of RM3.48 is maintained.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Price: RM2.37
Target Price: RM3.48
Recommendation: BUY
· Company announced that it has secured the sale of 2 offshore support vessel via its subsidiary - Thaumas Marine Ltd for USD62 million (RM201.5m) or RM100.8m each which according to our records should be the most valuable contract per vessel for the company. With this sale, the company's order book is now at RM1.2 billion with delivery stretching up to 2010.
· Record selling price per vessel. While details of the two vessels are not revealed including its buyer, but given the high selling price of at least RM100m each lead us to believe that it could be at least 70m in length with engine capacity of 10,000 bhp. Delivery is slated for 2010.
· Recall that in October last year when the record RM365m deal was announced for the delivery of 4 vessels including two 70m x 10,880 bhp AHTS, those two vessels based on our estimates have a price tag of RM97m each. Should these two to be of similar specifications, prices of the vessels would have improved by an additional 3.9%.
· Order book now at RM1.2billion after having secured RM518m during the first 5 months of the year. With such a high order book stretching up to 2010, earnings visibility likewise will be high. Based on our cumulative sales forecast of RM1.26billion between 2008-2010, company has already achieved some 95% of our forecast for the coming three years!
· We are very positive with the deal. Besides the headline numbers, what really impressed us was the fact that company's reputation as a world-class offshore support vessel builder is firmly entrenched especially in the bigger type vessels including the 10,000 bhp category. Previous skepticism of the company being restricted to building the smaller vessel type namely the 5,000 bhp and below should be clearly expounded now with this current deal. We believe that company's growing reputation especially in the higher class vessels where demand is expected to increase further on the back of a shift of exploratory work towards the deeper waters globally should be a boon for the company.
· Not resting on laurels. Even with the record orders, management we gathered is working extremely hard to continue to add to their order book. As guided much earlier, time and resources are now trained on growing their order book even beyond 2010!
· Yesterday's announcement on the yard acquisition is timely, as its original yard of 17 acres is already filled to the brim with work orders. Meanwhile, our sources have indicated that talks with a major offshore support vessel owner remain on track which if successful can potentially open up new market for the company's vessels.
· Forecast and recommendation unchanged. BUY is maintained. With delivery slated for 2010, impact therefore will be in FY10. Based on a conservative net margin of 20%, the RM201m deal is expected to generate some RM40m in net profit or 11sen EPS. High order visibility, strong management and an undemanding valuation of 10x for current year's earnings are key drivers for our BUY recommendation. Our target price of RM3.48 is maintained.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Coastal - BUY - 15 May 2008
Coastal Contracts - Acquires more land (Company Update)
Price: RM2.36
Target Price: RM3.48
Recommendation: BUY
· Company announced that its wholly owned subsidiary - Pleasant Engineering Sdn Bhd had entered into a Sale and Purchase agreement to acquire four parcels of land measuring approximately 22 acres together with industrial and other buildings erected thereon for a cash consideration of RM4m.
· We are very positive with the above acquisition as the new land is situated next to its original yard at Sungai Seguntor, Sandakan which is already filled to the brim with work orders. The new yard being next to it will therefore help to alleviate the current tight situation.
· Acquisition price of RM4m or RM4.17 psf is reasonable. Even though not as cheap as the previous acquisition where Coastal bought the new 52 acre yard for a mere RM2m (RM0.88 psf) in 2006, the current acquisition will still be very synergistic, being situated next to the original yard (17.6 acres) enabling a single contiguous yard space of 39.6 acres. This would provide better flexibility in planning more efficient location of slipways maximising the land usage for more shipbuilding.
· Meanwhile, company's 1Q08 results should be announced some time next week. Preliminary guidance is that it will be another good quarter given the prevailing market condition for offshore support vessels which had remained strong.
· Management is optimistic that confirmed order book will likely rise by another RM300m - RM400m progressively over the year to reach an eventual size of RM1.4b - RM1.5b. Recent conversations with management have revealed that enquiries for vessels had remained very strong. According to sources, many new buyers introduced via shipbrokers including RS Platou have expressed interest to acquire vessels from the company. In fact, we gather that the company had been approached by one of the largest offshore support vessel operator in the west with a fleet size of more than 400 to be their partner in their fleet renewal program. Currently trading at a mere 10x current year's earnings, our BUY is maintained with a target price of RM3.48.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Price: RM2.36
Target Price: RM3.48
Recommendation: BUY
· Company announced that its wholly owned subsidiary - Pleasant Engineering Sdn Bhd had entered into a Sale and Purchase agreement to acquire four parcels of land measuring approximately 22 acres together with industrial and other buildings erected thereon for a cash consideration of RM4m.
· We are very positive with the above acquisition as the new land is situated next to its original yard at Sungai Seguntor, Sandakan which is already filled to the brim with work orders. The new yard being next to it will therefore help to alleviate the current tight situation.
· Acquisition price of RM4m or RM4.17 psf is reasonable. Even though not as cheap as the previous acquisition where Coastal bought the new 52 acre yard for a mere RM2m (RM0.88 psf) in 2006, the current acquisition will still be very synergistic, being situated next to the original yard (17.6 acres) enabling a single contiguous yard space of 39.6 acres. This would provide better flexibility in planning more efficient location of slipways maximising the land usage for more shipbuilding.
· Meanwhile, company's 1Q08 results should be announced some time next week. Preliminary guidance is that it will be another good quarter given the prevailing market condition for offshore support vessels which had remained strong.
· Management is optimistic that confirmed order book will likely rise by another RM300m - RM400m progressively over the year to reach an eventual size of RM1.4b - RM1.5b. Recent conversations with management have revealed that enquiries for vessels had remained very strong. According to sources, many new buyers introduced via shipbrokers including RS Platou have expressed interest to acquire vessels from the company. In fact, we gather that the company had been approached by one of the largest offshore support vessel operator in the west with a fleet size of more than 400 to be their partner in their fleet renewal program. Currently trading at a mere 10x current year's earnings, our BUY is maintained with a target price of RM3.48.
KENANGA INVESTMENT BANK BERHAD (15678-H)
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