COASTAL 3Q14 earnings increased 25% YoY

1. 3Q14 EPS jumped 25% to 10.22 sen as net profit increased 37% YoY to RM54.3m. The higher net profit is caused by better PBT margin at 24% against 3Q13’s 20%. Again, this is caused by better sales mix of vessel delivered in 3Q14. As for 9M14, EPS gained 38% to 29.35 sen.
2. Stay positive on Oil and Gas outlook. Despite the short term weakness in global crude oil prices, the Company remained positive on oil prices in the long term due to limited supply and increasing demand. Hence, this should lead to continuous order for its vessel in the long run.
3. Book Value enhanced to RM2.51 (Sep-14) from RM2.09 (Dec-13). Note that Company that consistently increased its Book Value and paying dividend is the one that stay committed to increase shareholders value.
4. Theoritical Fair Value of RM4.50 based on 10x FY15 Fwd. PE.

The 10x PE is in line with mid cap Oil and Gas valuation currently. FY15E EPS should reach 45.0 sen assuming 10% earnings growth in FY15E and 30% in FY14E EPS. Such growth estimate is conservative as its 9M14 earnings growth is already at 38%. Based on latest share price of RM3.46 as of 21-Nov-2014, this means 30% upside

Coastal Contracts Berhad - The Golden Coast?

Background:

Coastal Contracts Berhad (COASTAL) is mainly involved in Shipbuilding and Ship Repair (SSR) and Vessel Chartering (VS). The Company’s clients are mainly from offshore oil & gas industry, mining sector, commodities sector, marine traders and national navy. In FY13 (ending December), SSR division contributed RM146.9m Profit Before Tax (PBT) or 97% of the Group's total PBT of RM150.9m. VS division PBT contribution is RM4.0m or 3% of Group’s.

1H14 earnings jumped 54% YoY to RM97.4m

Key driver behind the good earnings growth is SSR division which saw its PBT +69% YoY to RM99.2m. SSR division benefited from higher vessel sales which surged 54% YoY to RM464.6m. Based on the Company’s Bursa announcement, the Company delivered 9 units of vessels in 1H14 against 7 units in 1H13.

Net Cash of RM574m or RM1.08 cash

This is based on its 2Q14 total cash of RM580.1m, short term loan RM2.0m, long term debt RM3.8m and equity of RM196.2m. Comparitively, many other Oil & Gas company is in net gearing position. As interest rate is expected to increase further in 2015, COASTAL stand to be least affected due to their net cash position.

In the right business of shipbuilding industry

SSV division PBT margin of 21.3% in 1H14 is better than 1H13’s 19.5%. Such high PBT margin is considered super good against many other business.

Theoretical Target Price of RM6.38 sen based on 13x FY15 Fwd. PE.

The 13x PE is in line with mid cap Oil and Gas valuation. FY15E EPS should reach 49.0 sen assuming 20% earnings growth in FY15E and 30% in FY14E EPS. Such high growth estimate is not excessive as its 1H14 earnings growth is already at 54%. Based on latest share price of RM4.62 as of 23-Sep-2014, this means 38% upside.