The followings are key takeaways from COASTAL’s virtual analyst briefing: i) Increase in gas processing rate for Perdiz Plant; ii) Papan and Perdiz Plants expected to operate at maximum capacity in 6-8 months; iii) Strong orderbook provides earnings visibility. No changes to our earnings forecast. Reiterate Buy with an unchanged target price of RM3.10/share based on SOP valuation.

Increase in Gas Processing Rate for Perdiz Plant

The average daily gas processing volume for Perdiz plant decreased from 186.1mmscfd to 165.2mmscfd in 3QFY23 as some of the gas for Perdiz plant is diverted to the Papan plant for commissioning test. This is because Ixachi field’s production capacity is only at 300mmscfd per day, while the processing capacity of Perdiz plant and Papan plant is 180mmscfd and 300mmscfd respectively. Management expects Perdiz’s processing volume to go below the 120mmscfd takeor-pay level in the coming quarter as more gas is diverted to the Papan plant that can recover more by-products (naphtha and LPG). Despite the lower processed volume, revenue for Perdiz plant increased 17.8% QoQ in 3QFY23 contributed by RM11.7mn from increase in contract rate. Management disclosed that the tariff has increased by c.7-8% since 3QFY23.

Papan and Perdiz Expected to Operate at Maximum Capacity in 6-8 Months

Papan plant has completed commissioning test on 26 March 2023 and will start contributing to processing revenue in 4QFY23. Management expects both Perdiz and Papan plants to operate at maximum capacity in 6-8 months once Pemex builds more wells at Ixachi field to increase the field’s production capacity. We note that in COASTAL’s discussion to extend the Perdiz plant’s contract period, Pemex is considering adding naphtha and LPG recovery features to the plant. We believe this is a good sign that the group is well on track to gain an extension of contract and may be able to negotiate a higher tariff.

Strong Orderbook Provides Earnings Visibility

COASTAL’s current bloated orderbook stands at RM4.3bn with a potential addition of RM666.9mn from contract extensions. Meanwhile, the group’s tender book stands at RM5.2bn. Some of the group’s targets are 1 production-related infrastructure project and 3 renewable energy projects (mainly solar and windfarm) in Southeast Asia. However, the group believes that these contracts are unlikely to be announced in the near term. On the other hand, Mexico joint venture company Coastoil Dynamic S.A. de C.V. is bidding for 4 gas-related projects in Mexico. Over the long term, the group plans to transition from gas-related infrastructure to green energy. Despite improvement in earnings in recent quarters, the group plans to expand further before finalising its dividend policy.

Impact

No changes to our earnings forecast.

Valuation

Reiterate Buy on COASTAL with an unchanged target price of RM3.10/share based on Sum-of-Parts (SOP) valuation.

Source: TA Research - 12 Jun 2023