Yesterday, Coastal announced that its 100%-subsidiaries have secured contracts for the sale of 10 offshore support vessels (OSV) and two low-end vessels for an aggregate value of about RM446m. We maintain Buy on Coastal, with an unchanged fair value of RM2.50, based on the existing PER of 7x FY12 EPS.

Positive news but no change to our FY12-13 earnings forecasts. This is because we had earlier factored in some orderbook replenishment for this company.

New orders boost orderbook to RM583m. This amount is expected to keep the company busy until the end of 2013. In fact, we see this orderbook replenishment as very timely for Coastal; otherwise, its yard may be left unutilised next year. Also, the prevailing economic uncertainties in the European region have dampened global demand for most commodities including oil and gas, which has in turn affected the progress of new and big offshore O&G projects and slowing demand for OSVs.

Maintain Buy. Our fair value for Coastal remains unchanged at RM2.50, based on the existing PER of 7x FY12 earnings. We are of the view that it would be a matter of time before Coastal's yard is converted into other O&G uses besides shipbuilding given the persistent sluggishness in newbuilds, especially low-end vessels in general, as well as offshore support vessels. There will still be demand for the bigger rigs since the oil majors may want to capitalise on the lower cost resulting from the global economic slowdown. However, the case may not be the same for OSVs as rigs cost a lot more than OSVs. Under such a scenario, the oil majors may not be in a hurry place new OSV orders.

Source: OSK