COCO is UPGRADED to BUY, with FV of MYR3.77 (from MYR3.50) based on  a  new  target  FY14  P/E  of  12x.  Its  9MFY13  core  net  profit  beat  our expectation  but was in  line with consensus  estimate.  The  9MFY13 PBT margin  improvement  in  its  shipbuilding  &  ship  repair  segment contributed to its  superb  performance.  We have yet to incorporate  any potential contribution from its first rig due to be delivered by 2HFY14.

• 9MFY13 core net profit jumps 19.9% y-o-y. COCO’s 9MFY13 core net profit  of  MYR105.4m  beat  our  expectation  but  in  line  with  consensus estimate, making up 82% and 75% of  both full-year forecasts.  The profit before tax  (PBT)  margin  for 9MFY13  improved to  20.1% vs  9MFY12 ’s 16.4%.  The company said shipbuilding costs declined while PBT margin at its shipbuilding  & ship repair segment  improved  substantially to 19.8% in 9MFY13 vs 15.8% in 9MFY12.    9MFY13 revenue rose to MYR15.7m as more vessel were chartered vs MYR7.2m in 9MFY12
• Shift to more technologically advanced vessels.  COCO delivered 19 vessels  each  in  both  9MFY13  and  9MFY12.  However,  we  believe  that the  vessels  supplied  in  9MFY13  were  more  technologically  advanced hence  fetched  higher  profit  margins  during  this  period.  Management reaffirmed  its  goal  of  supplying  more  of  such  vessels  as  charterers’ current requirements have become increasingly demanding.
• Taking delivery of first  rig.  COCO  is scheduled to take delivery of its first jack-up rig in 2HFY14. We have not taken into account any potential contribution from this  rig as it has yet to be contracted.  We understand that the management is  in  active  discussions on a  rig charter contract, but  in  the  event  this  fails,  it  may  eventually  sell  the  rig.  However,  we believe this  is unlikely  considering the  heightening of  offshore oil & gas (O&G) activities within ASEAN.        
• BUY,  with  FV  MYR3.77.  We  tweak  up  both  our  FY13  and  FY14 earnings  estimates  by  7.8%  in  view  of  the  good  demand  for  more sophisticated  offshore  support  vessels  (OSVs).  We  raise  our  FV  to MYR3.77 (from MYR3.00) and upgrade the stock to BUY. We derive our FV from  a target FY14 P/E of 12x  (from 10x), in  line with  those of  smallto mid-cap O&G asset owners. 

Financial Exhibits

SWOT Analysis

Company Profile
Coastal Contract’s principal activities are in shipbuilding and vessel chartering.

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Source: RHB