COASTAL’s 50%-owned Mexican JV has secured a 22-month extension from Pemex for its gas sweetening services contract at Perdiz Plant until 31 Dec 2025. The maximum contract value has increased by 1.1bn Mexican Pesos (c.RM318.9mn) to 2.8bn Mexican Pesos. We are positive on the development as the contract extension would provide recurring earnings up to FY25 and increase the likelihood of COASTAL securing another 5-year contract extension with LPG processing capability added to Perdiz Plant. No change to our earnings forecasts as the contract extension is already factored in our earnings estimate. Maintain Buy with an unchanged TP of RM1.90/share based on SOP valuation.

Extension of Gas Sweetening Services Contract for Perdiz Plant

Coastal Contracts Berhad’s (COASTAL) 50%-owned Mexican joint venture (JV) has secured an extension from Petroleos Mexicanos (Pemex) for its gas sweetening services contract at Perdiz Plant until 31 Dec 2025. The 22-month contract extension is timely considering that Perdiz Plant’s contract is ending this month.

The maximum contract value has increased to 2.8bn Mexican Pesos, representing an increase of 1.1bn Mexican Pesos (c.RM318.9mn). We estimate the gas processing tariff for the contract extension to be around 9,400 Mexican Pesos or RM2,600 per million standard cubic feet (mmscf). Comparatively, Papan Plant’s tariff is estimated to be around RM3,500-RM3,600 per mmscf, higher due to its additional ability to recover naphtha and liquefied petroleum gas (LPG).

Our Take

The contract extension does not come as a surprise as management has alluded that the JV was negotiating with Pemex about contract extension since the end of last year. We are positive on the development as the contract extension would provide recurring earnings up to FY25 and increase the likelihood of COASTAL securing another 5-year contract extension with LPG processing capability added to the Perdiz Plant. Note that Ixachi field only has 2 gas processing plants, Perdiz Plant and Papan Plant, both operated by COASTAL’s Mexican JV. As Ixachi field’s gas production capacity ramps up, we expect both plants to achieve maximum utilisation rate by end-2024.

Impact

We make no change to our earnings forecasts as the contract extension is already factored in our earnings estimate.

Valuation

Maintain Buy with an unchanged TP of RM1.90/share based on sum-of-parts (SOP) valuation.

Source: TA Research - 6 Feb 2024