• Keep BUY, with new MYR1.67 TP from MYR1.85, 13% upside. We are upbeat on Coastal Contracts given the refinancing of its JV loan is near completion and payment will be made in 4Q24, positioning it to support new projects. Additionally, production increases at the Ixachi field are expected to help the group maintain its strong foothold in Mexico, with multiple projects in the pipeline. Progress remains contingent on Pemex's decisions.
• Strong net cash position. The group will be receiving payment of USD155m in 4Q and an additional USD10m in 1Q25 from its JV, potentially closing the year with nearly MYR1bn in net cash (c.MYR1.90/share). This robust cash position could lead to a special dividend, particularly ahead of the impending tax on dividends. Moreover, it strengthens COCO's ability to pursue new opportunities, including renewable energy (RE) projects, such as large-scale solar (LSS) farms, where the group is currently bidding for projects in Sabah.
• Delayed jack-up gas compression service unit (JUGCSU) contract extension... Contract extension negotiations for JUGCSU are progressing slower than anticipated and may extend beyond the year-end timeline initially guided. As such, we adjust our FY25F-26F earnings downward by 9.3% and 4.4%, reflecting lower contributions from the JUGCSU. Pemex is inclined towards converting the JUGCSU into a mobile offshore production unit (MOPU) for a five-year extension at the current field. The alternative is relocating the unit to a new field, which is 20m deeper and would require leg extensions for a 5-10-year term.
• ...might be buffered by plant expansion of either the Perdiz or Papan plant. This is to accommodate the anticipated production growth from the Ixachi field, which Pemex expects to double by 2025. Both the Papan and Perdiz plant are currently operating at near-maximum capacities of 345 mmscfd and 185 mmscfd, respectively. Management hopes to expand either plant by 1H25, subject to Pemex's decisions. Additional projects being considered include a gas dehydration plant, ixachi separation plant, gas conditioning plant, and a gas storage project.
• Potential receivables impairment. COCO has flagged the risk of a one-off impairment next quarter on receivables from Pemex related to its JUGCSU operations. Given the latter is currently facing financial challenges, it is prioritising payments, leaving the expired JUGCSU contract lower on the list. If payment is not collected by 4Q24, the full amount of USD33.2m will be impaired, with any subsequent recovery treated as a reversal. Meanwhile, payments related to the Papan and Perdiz plants remain unaffected.
• BUY. After tweaking our earnings estimates, our TP is lowered to MYR1.67, based on an unchanged 6x FY25F P/E (-1.5SD from the historical mean), incorporating an 8% ESG discount. Downside risks include contract cancellations, slower-than-expected progress billings, and rising costs.

Source: RHB Securities Research - 18 Dec 2024