Period  4Q14/FY14

Actual vs. Expectations  Coastal Contract Bhd (COASTAL)’s 4Q14 net profit of RM39.1m brought FY14 net profit to RM190.8m which is within both our (RM198.2m) and consensus (RM197.8m) full-year forecasts, at 96.2% and 96.5%, respectively.

Dividends  3.80 sen DPS was announced in the quarter; bringing its cumulative FY14 DPS to 7.2 sen which is within our 7.3 sen forecast (98.6%).

Key Results Highlights  Net profit in 4Q14 weakened by 28.0% QoQ mainly due to lower delivery of OSV vessels (4Q14: 2 vessels vs. 3Q14: 3 vessels).

 On YoY basis, core net profit also plunged by 20.2% as OSV vessel deliveries were significantly lower at 2 vessels in the quarter in comparison to 5 vessels last year.

 FY14 net earnings, however, surged by 25.8% YoY due to higher shipbuilding revenue YoY and higher EBIT margins as a result of more favourable vessel mix.

Outlook  COASTAL’s orderbook now stands at RM2.8b.

 We only expect four months earnings contribution from jack-up gas rig chartered on long-term contract to PEMEX this year.

 COASTAL is awaiting two high-specification jackup rigs due in 1ST and 2nd half of 2015. Both these rigs have yet to secure any contracts.  However, we understand management is working very hard to close some deals soon. If no contract is secured, the management will elect to dispose the rig pre-actual delivery to reduce their risk exposure.

Change to Forecasts  We tweaked our FY15E net profit to RM202.8m from RM202.2m previously due to housekeeping purposes.

 FY16E net profit of RM234.1m is introduced on the back of these assumptions; (i) full year contribution from gas rig chartered to PEMEX, and (ii) RM1.0b orderbook replenishment for shipbuilding division.

Rating Maintain OUTPERFORM.

Valuation  Fair value maintained at RM3.42 based on unchanged 9.0x CY15 PER.

 This is consistent with small-mid-cap O & G valuation which ranges from 7.0 to 10.0x in a down-cycle.

Risks to Our Call  (i) Lower-than-expected margins and vessel sales, (ii) Inability to secure contracts for maiden jack-up rig, and (iii) Delay or cancellation of jack-up rig gas compression unit. 

Source: Kenanga