• Keep NEUTRAL and MYR1.64 TP, 5% downside. Although we are optimistic over Coastal Contracts’ announcement of an extended liftboat contract, we remain cautious over the slow job wins and its venture into the tourism industry. Meanwhile, the stronger income from COCO’s two gas plants, in our view, will offset the income loss of the jack-up gas compression service unit (JUGCSU) during the ongoing contract extension discussions.

• Liftboat contract extension. COCO subsidiary Elite Point has secured a 1- year contract extension for its Teras Conquest 7 (TC7) liftboat, valued at MYR64.1m – a downwards rate revision of c.27%, which we anticipated. This contract, initially set to end in September, will now continue for an additional year. Since this extension was expected, our forecasts remain unchanged, as these figures were already included. The marine segment, primarily driven by the liftboat charter, contributes c.2% to COCO’s 18MFY23 PBT (excluding gains on disposal).

• Delayed JUGCSU contract extension. The contract extension for JUGCSU, which expired in Nov 2023, is still under negotiation, with production being halted during this process. The group initially anticipated a 6-month discussion period, but negotiations have been extended to the end of the year, as Pemex has proposed two options for the JUGCSU contract extension. The first option is to convert it into a mobile offshore production unit or MOPU to operate at the current field it is operating in for five years. The second option is to move the JUGCSU to another field to operate for 5- 10 years, which would require extending the legs since the new field is 20m deeper. Given that Pemex is inclined for the first option, and that the deal needs to be concluded by the end of the year, we believe the contract extension will proceed. Additionally, we hold the view that stronger income from the two gas plants will offset the income loss from JUGCSU during the ongoing discussion period.

• Maintain NEUTRAL. We maintain our MYR1.64 TP based on an unchanged 6x FY25F P/E (-1SD from its 5-year mean). This is due to the slower-than- expected project rollouts and uncertainties surrounding the new tourism venture. However, this is balanced by stronger income from the two gas plants, driven by increasing gas production at Pemex’s field. Our TP also includes a 6% ESG discount based on the group’s 2.7 score vis-à-vis the 3.0 country median.

• Key downside risks include contract terminations, lower-than-expected progress billings, and higher-than-expected costs. The converse represents the upside risks.

Source: RHB Research - 1 Jul 2024