9M14  MYR153m  core  profit  was  in  line  (met  79%  of  our/street estimates), buoyed by 14 vessel deliveries (9M13: 13 vessels). We retain earnings  forecast and  BUY call, with  new TP  at  MYR4.80  (implied  13x P/E,  39%  upside)  after  adjusting  its  shipbuilding  valuations.  Its MYR2.5bn  orderbook  is  underpinned  by  vessel  deliveries  up  to  2015 and GCSU long-term contract, while it expects JU rig delivery by 1H15. 

In line.  Coastal’s 9M14 core profit of MYR153m (53% YoY  growth), met 79% of our/  consensus estimates, on the back of  38% revenue growth. This  was  supported  by  a  higher  number  of  vessel  deliveries,  and improved  net  profit  margins  to  22%  (9M13:  20%)  arising  from   a favourable  product  mix  comprising  high-value  offshore  support  vessels (OSV).  Coastal’s shipbuilding and repair division delivered three  vessels in 3Q14 (2Q14: six units; 3Q13: six units), with improved margins QoQ to23.5%  (2Q14:  20.5%).  Its  YTD  OSV  deliveries  amounted  to  10  units, similar  to  9M13.  Its  vessel  chartering  business  reported  poor performance,  due  to  lower  fleet  size  and  utilisation  rate.  However,contributions are not significant.

Orderbook  of  MYR2.5bn  as  at  Sep  2014.  Of  this,  MYR1.3bn  is  for shipbuilding and vessel sales orders which will be delivered to customers up to 2015. The balance MYR1.2bn orderbook is for the 8+4-year charter of  a  gas  compressor  service  unit  (GCSU)  to  Mexico-based  Petroleos Mexicanos (Pemex), which commences in 2H15. The group now expects its  first  high-spec  jack-up  (JU)  rig  to  be  delivered  by  1H15  (vs  4Q14 previously) as it is still negotiating  for potential charters.  We do not see this  as  a  surprise  as  our  JU  rig  assumptions  is  at  100  day  utilisation. Expected delivery for the second JU rig remains at 2H15. 

No changes to  earnings  forecasts.  We expect its subsequent quarter earnings    to see  higher interest and depreciation charges, which  could progressively result in a  net gearing of 0.1-0.4x by FY15, in line with thecompany’s focus on owning jack-up assets from merely shipbuilding.

Maintain BUY, adjusted SOP TP MYR4.80  lowered from MYR5.90, as we revise  our shipbuilding P/E valuations to 9x P/E (from 12x) to be in line  with  the  OSV  valuations  of  8-13x.  Our  SOP  values  the  OSV  with P/E,  GCSU  with  DCF  and  the  JU  rig  with  EV/EBITDA  (Please  see overleaf for details of our assumptions). 

Source: RHB