Journey to Wealth
Coastal Contracts Bhd - More vessel sales
News The company announced that it had secured sales for another 4 vessels with an aggregate value of approximately RM141m.
The 4 vessels consisted of one 300-Men Accommodation Work Barge, one Anchor Handling Tug Supply (AHTS) and two low-end vessels.
The vessels are expected to be delivered in 2012-2013.
Comments We are positive on the news as the company is still securing orders for new vessels.
There was no guidance in regard to margins and the split for the delivery timelines, but the company announced that its current orders now stand at RM711m.
This is more than the FY11 year-end order book which stood then at RM610m. However, the trend should moderate as deliveries are recognised within the year.
Outlook Net profit margin has been guided to be more modest at around 15%-25% from FY12E onwards (vs. 25%-34.9% in past 5 years) due to the normalisation of market conditions for the shipbuilding industry in the region.
Its forays into different businesses like 1) fabrication and engineering and 2) FPSO and FSO have yet to take off.
Management is still actively looking out for opportunities to diversify its sources of earnings.
Forecast We are maintaining our earnings estimates at this juncture given that we have already imputed for some new order wins (12 AHTS and 20 tugs and barges) for FY12.
The company's 2QFY12 result is expected to be released on 27th August 2012.
Catalysts to raise our forward estimates will be if the current year-end order book is significantly above that of last year.
Rating MAINTAIN OUTPERFORM
Valuation Our unchanged target price of RM2.53 is based on a targeted PER of 7.5x on FY13 EPS of 33.7sen.
Risks 1) Continued sluggish orders and margin erosion, and 2) inability to gain new forms of business.
Source: Kenanga
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