Key takeaways from COASTAL’s analyst briefing: (i) Papan and Perdiz Plant have reached their maximum processing capacity. (ii) TC7 underwent 5-year SPS from 13th June to 24th August; (iii) Potential Conversion of JUGCSU into MOPU; We have adjusted our utilisation rate forecast solely for TC7 from 83% to 80% for FY24 and increased the maximum processing capacity assumption for Perdiz Plant to 185mmscfd (from 180mmscfd), the latest disclosed capacity during the analyst briefing. Following this, we raise our FY24/FY25/FY26 earnings forecasts by 0.1%/5.6%/7.3%. Upgrade to Buy with a slightly higher TP of RM1.89/share (previous: RM1.88/share) based on SOP valuation.

Papan and Perdiz Plant currently reach its maximum processing capacity.

Recap that COASTAL was planning to increase their gas processing volume as Pemex plans to expand Papan Plant’s capacity followed by modification of Perdiz Plant to include LPG recovery capabilities. The expansion plan is expected to be finalised by early next year. The gas processing volume at both Perdiz and Papan Plant continue to ramp up as planned and have currently reached their maximum processing capacity. Papan Plant is currently processing at its maximum processing capacity of 345mmscfd (1QFY24: 287mmscfd; 2QFY24: 339mmscfd). Meanwhile, Perdiz Plant’s daily average is also processing at its maximum processing capacity of 185mmscfd (1QFY24: 133mmscfd; 2QFY24: 162mmscfd).

TC7 Undergone 5-year SPS From 13th June to 24th August

We initially expected TC7 to undergo its Special Periodic Survey (SPS) this year, though no specific timeframe was provided. Based on the latest insights from the analyst briefing, the SPS duration was confirmed to be 2.37 months, slightly above our earlier estimate of 2 months. As a result, we have revised lower our utilisation rate forecast for TC7 to 80% from 83% for FY24.

Potential Conversion of JUGCSU Into MOPU

Recall that Coastal's jack-up gas compression service unit (JUGCSU) remains suspended while discussions on a contract extension are ongoing. Options for the JUGCSU: (i) to convert it into a mobile offshore production unit (MOPU) with a production capacity of approximately 40,000 barrels per day, operating at the current field for five years, or (ii) to continue operating as a JUGCSU at a different field for 5-10 years, which would require modifications due to the water being 20 feet deeper. We understand that Pemex aims to finalize discussions with the JUGCSU's charterer by year-end, and Pemex appears to favour the first option. We view these developments positively, as they indicate a strong likelihood of a contract extension.

Impact

We have adjusted our utilisation rate forecast solely for TC7 from 83% to 80% for FY24 and increased the maximum processing capacity assumption for Perdiz Plant to 185mmscfd (from 180mmscfd), the latest disclosed capacity during the analyst briefing. Following this, we raise our FY24/FY25/FY26 earnings forecasts by 0.1%/5.6%/7.3%.

Valuation

Due to the recent decline in share price, we have upgraded COASTAL from Hold to Buy with a slightly higher TP of RM1.89/share (previous: RM1.88/share) based on SOP valuation. It is expected to secure contract extensions for JUGCSU and capacity expansion contract for Papan Plant, providing additional recurring income to the group.

Source: TA Research - 17 Sept 2024