1Q19 results were within expectations, driven by improved performance in its shipbuilding segment with one vessel delivery during the quarter. Nonetheless, we see a lack of catalyst at this juncture, with no new shipbuilding orders announced since Feb 2016. Expect JUGSU charter to PEMEX to be main earnings contributor going forward. The stock is now a NOT RATED, as we are ceasing active coverage on it, with latest TP of RM0.93.

Within expectations. 1Q19 core net profit of RM8.8m (arrived after stripping-off forex of RM8.3m) came in within expectations at 25% of our FY19E full-year earnings. No dividends were declared, as expected.

Better over results. YoY, 1Q19 core net profit jumped 16%, mainly led by recovery in shipbuilding segment as compared to segmental losses in 1Q18 from cost overruns. Sequentially, 1Q19 core net profit almost doubled QoQ, driven similarly by improved shipbuilding segment as the company saw one vessel delivery during the quarter, as compared to nil last quarter.

Catalyst out of sight. We see no major catalyst to excite the offshore market and induce further shipbuilding orders at this juncture. As we understand, COASTAL has not announced any new shipbuilding orders since Feb 2016, and we expect this to likely remain, with a possible recovery only in a longer-term should oil prices stage an impressive recovery on top of major improvements in the demand-supply dynamics in the global offshore vessels market. Meanwhile, we expect the Jackup Gas Compression Service Unit (JUGCSU) which was chartered to PEMEX in the Gulf of Mexico to be the main earnings contributor in the near term. No changes to our FY19-20E numbers post-results.

Ceasing coverage. We lowered our TP to RM0.93 (from RM1.05 previously) as we roll-forward our valuation base year to FY20E, coupled with some post-model updates, based on valuations of 0.45x PBV. We have opted to cease active coverage on the stock for now, transferring it to retail coverage under our “On Our Radar” series due to resources reshuffling coupled with the lack of investors’ interests on the counter of late. Should investors’ sentiment or outlook improve, we may seek to resume coverage in the future. Our latest call on the stock is now a NOT RATED (from MARKET PERFORM previously) with price target of RM0.93 and FY19E/FY20E earnings forecasts of RM35.8m/RM40.3m.

Source: Kenanga Research - 27 Nov 2018