Coastal Contracts; Buy; RM4.09
Price Target: RM3.75 (Under review); COCO:MK

Coastal Contracts announced that it had secured a charter contract for the provision of a self-elevated jack-up rig to Petroleos Mexicanos (Pemex) for gas compression services. The contract is expected to commence in 2H2015 for an 8-year period with an extension option up to 12 years, and a total value of RM1.24bn. The announcement also detailed that Coastal would receive the jack-up in 1H2015, later than our previous expectation of 1H2014.

Pemex is the second largest Latin American company by revenue (smaller than Petrobras). The contract was awarded via a group of Mexican upstream contractors consisting of Tecnologías Relacionadas con Energía y Servicios Especializados, S.A. de C.V., Sistemas Integrales de Compresión, S.A. de C.V., Ardica Construcciones, S.A. de C.V. and Alher Oil & Gas, S.A. de C.V.

Effectively, this would bring Coastal’s outstanding order book to RM2.5bn (including OSV construction contracts). Further benefits to this contract may be in the form of potentially more OSV supply contracts in the Latin American region.

We are positive on the development. The contract improves the Group's long-term earnings visibility and allows Coastal to move up the value chain. The stock has gained 16% over the last 3 months, but is still cheaper than Perisai's P/E of 12.6x FY15 EPS and growth fundamentals are still sound given its already swelled RM1.3bn OSV construction order book. We maintain BUY for now, but our price target and earnings forecast are currently under review. 

Source: HwangDBS Research - 11 Feb 2014