Review

• Coastal Contracts Berhad’s (COASTAL) 15MFY23 core profit of RM381.9mn accounted for 122% of ours and 128% of consensus’ full-year forecasts. We deem the result to be within expectations as COASTAL has recently changed the financial year end to December (from June previously).

• QoQ: The group registered PBT of RM87.9mn in 5QFY23 compared with LBT of RM36.2mn in 4QFY23. The LBT in 4QFY23 was due to loss on disposal of JV (where accrued JV profit is transferred back to JV partner Nuvoil) and provision in delay penalty in achieving critical construction milestone in JV company amounting to RM92.4mn.

• YoY: PBT in 5QFY23 plunged 42.5% compared with 1QFY23 on the back of lower share of profit from JV as the share of profit was still 100% recognised in 1QFY23. Note that the 50% equity stake in JV company was transferred to Nuvoil back in 4QFY23.

Impact

• After factoring in the change in financial year end and the temporary suspension of JUGCSU charter, we adjust our FY23/FY24/FY25 earnings forecasts by 49.1%/-27.9%/-0.2% respectively.

Outlook

• Pemex recently requested for the temporary suspension of Agosto Jack-up Gas Compression Service Unit (JUGCSU) from 27 Nov 2023 onwards while the discussion for extension of existing contract is ongoing. The contract was supposed to end in February 2024. The outcome of discussion is expected to conclude within 3-6 months.

• We believe COASTAL is the leading contender for Pemex’s planned large gas conditioning plant. The group is targeting 4 gas-related projects in Mexico via its 50%-owned JV company. Considering the group’s track record in Papan and Perdiz gas conditioning plants, we believe the group is the leading contender for these long-term contracts, potentially contributing recurring profit to the group in the long run.

Valuation

• After factoring in the changes in our earnings forecasts, we lower our TP to RM2.08/share (previously RM2.47/share). Maintain Buy.

Source: TA Research - 1 Dec 2023