Coastal Contracts; Hold
Price Target: RM1.90; COCO MK

Coastal Contracts announced that it had received RM434m in vessel sales contracts comprising seven offshore support vessels (OSVs) and two oil barges, scheduled for delivery from 2013 to 2014. This brings existing order book to RM720m, sustainable up to 2014.

The seven OSVs to be sold are: (a) four Platform Supply Vessels (PSVs) to new clients hailing from Holland and West Africa; (b) one Utility Support Vessel (USV) and one DP2-enabled Remote Operated Vehicle (ROV) Support/Maintenance Vessel to new clients in Malaysia and Italy; and (c) one Anchor Handling Tug Supply (AHTS) to Norway-based Vega Offshore. We understand the AHTS order to Vega Offshore will eventually be deployed to Brazil for Petrobras.

The contracts secured are the first for Coastal Contracts for the year, and represent 51% of our FY13F order win assumption. This is positive for the group, considering it has now opened new markets in West Africa and Norway, and cemented its strategy to move up the value chain in the form of higher-end OSVs. To receive orders for Petrobras’ fleet needs also indicates potentially strong OSV demand recovery. However, we believe operating margins would still be at the re-rated end of 15-20% (still a buyer’s market), while forays into LNG/FPSO/FSO ventures (financier role) have not materialised yet. Construction of its planned subsea vessels are still ongoing and would only complete in the medium term. Maintain Hold and RM1.90 TP.

Source: HwangDBS Research - 24 Apr 2013