News Yesterday, COASTAL announced that it has secured contracts for the sales of two units of Offshore Support Vessels (OSV) for a total value of c. RM197.0m.
Delivery of vessels is expected to be between 2015 and 2017.
Comments We were not entirely surprised by this announcement as management had indicated earlier that they expect to secure part of their firm vessel orders in 1Q15.
This is positive news for the group as it is still able to secure vessel sales order in times of bearish OSV market where appetite to purchase new vessels could be limited.
It is the first contract win by COASTAL in 2015 with contract value for vessel orders secured similar to 1Q14 (RM178.0m)
The contract win is within our assumptions as we have factored in c.RM1.0b contract wins for the group in FY15.
Assuming a gross margin of 20.0% as previously achieved, this contract is expected to contribute RM13.1m gross profit p.a. to the group in the period of FY15-17.
Outlook Post the contract win, COASTAL’s orderbook now stands at RM2.8b.
We only expect 4 months earnings contribution from this unit this year.
COASTAL indicated that they have sold the 1st Jack-up rig to be delivered in 1H15 as the group seeks to reduce their risk exposure to a potential downturn in the drilling market.
We view this move positively as it shows the management’s prudence in avoiding huge risks to the group.
Forecast We maintain our forecasts for now pending the release of its 4Q14 results tomorrow.
Rating Maintain OUTPERFORM
Valuation Our Target Price is RM3.42 pegged to 9.0x CY15 PER. This is in line with small-cap O&G stocks down cycle valuation range (7.0x-10.0x).
Risks to Our Call (i) Lower-than-expected orderbook replenishment.
(ii) Inability to dispose 2nd Jack-up in the event of absence of charter contract upon delivery.
Source: Kenanga
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