• Reiterate BUY and MYR1.85 TP, 23% upside. Coastal Contracts' 9M24 results missed expectations due to the temporary off-hire of its liftboat for maintenance. Nonetheless, potential positive catalysts remain, including the anticipated conclusion of contract extension discussions for its jack-up gas compression service unit (JUGCSU) by year-end.

• Below expectations. COCO posted 9M24 core earnings of MYR100.4m, falling short at 63% and 68% of our and consensus estimates. The underperformance stemmed primarily from weakness in the vessel chartering segment.

• Results review. Revenue for the group dropped 55.6% QoQ to MYR6.3m, on account of its liftboat being off-hire for periodic maintenance from mid-Jun to end-Aug 2024. Consequently, the vessel chartering segment reported a MYR4m pre-tax loss, compared to a profit of MYR6.1m in 2Q24. Excluding an unrealized FX loss of c.MYR65.9m, core profit stood at MYR20.7m (-47.3% QoQ). On a YoY basis, core profit declined by 71.3%, largely due to the suspension of the JUGCSU.

• Outlook. We expect COCO’s recurring income to remain robust, supported by the Perdiz and Papan gas plants operating at full capacity. Further upside could stem from increasing Perdiz’s processing volume and the resumption of JUGCSU operations. The ongoing contract extension negotiations for JUGCSU are expected to be finalised by the end of 2024, with Pemex favouring the option to convert 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, 20m deeper, which would require leg extensions for a 5-10-year term. In addition, the group is actively exploring renewable energy (RE) projects, including wind farms and solar.

• Keep BUY. We revise down our FY24F earnings by 13.5% to reflect the impact of the liftboat’s maintenance-related downtime. Our TP is kept at MYR1.85 is based on an unchanged 6x FY25F P/E (-1.5SD from the historical mean), incorporating an 8% discount for COCO’s ESG score of 2.6, which is below the country median of 3.0. With the recent dip in share price, the stock is now trading at an attractive 4.5x FY25F P/E (below -2SD from its five-year mean).

• Key risks. Downside risks include contract cancellations, slower-thanexpected progress billings, and rising costs

Source: RHB Securities Research - 28 Nov 2024