Coastal Contracts Bhd (Trading Buy)

• COASTAL shares are looking attractive from a risk-return perspective. The stock – after tumbling from a peak of RM1.51 in mid-January this year to as low as RM0.53 on 19 March – has been oscillating within a trading range since then.

• Following renewed buying interest that has led the share price to close at RM0.685 yesterday, COASTAL may attempt to break out from its range-bound pattern soon.

• On the back of the positive momentum, we reckon the stock could rebound towards the resistance thresholds of RM0.79 (R1) initially before challenging RM1.03 (R2) thereafter. This represents upside potentials of 15% and 50%, respectively.

• Our stop loss level is pegged at RM0.59 (or 14% downside risk).

• Meanwhile, COASTAL is in a fundamentally strong position to weather through the prevailing depressed crude oil price environment. The Group has net cash & short-term investments of RM196.5m (37 sen per share or slightly more than half of its existing share price) as of end-March 2020.

• COASTAL is involved in the ship-building & ship repair and vessel chartering businesses, servicing primarily the oil & gas industry. It posted net earnings of RM43.8m in the latest quarter to take 9-month results ended March 2020 to RM65.9m (+144% YoY), lifted partly by foreign exchange gains of RM22.7m. Based on an annualised core net profit of RM58m, the stock is currently trading at PER of 6.2x this year

Deleum Bhd (Trading Buy)

• DELEUM’s share price – which has been on a gradual decline after hitting a high of RM0.82 in May this year – could see a reversal and trend higher soon.

• Bouncing off from its recent lows of RM0.575 (which coincided with a 50% Fibonacci retracement level), the stock is expected to ride on the rebound momentum to test the resistance levels of RM0.76 (R1) and RM0.90 (R2), which translates to upside potentials of 17% and 38%, respectively.

• On the other hand, in the event of renewed share price weakness, we have set our stop loss level at RM0.57 (or 12% downside risk).

• Fundamentally speaking, amid the challenging oil & gas industry landscape, DELEUM’s balance sheet remains sound, backed by a net cash position of RM84.1m (21 sen per share or about one-third of its current share price) as of end-March this year.

• In terms of profitability, the Group – an integrated service provider of a diverse range of specialised products and support services in the upstream oil and gas industry – has been making money every quarter in the past 10 years, registering net earnings of RM2.2m (-23% YoY) in the most recent quarter ended March 2020. Based on its 3-year average net profit of RM31m, the stock is presently valued at a PE multiple of 8.4x

Source: Kenanga Research - 12 Aug 2020