Review

• Coastal Contracts Berhad’s (COASTAL) 1HFY24 core profit of RM46.0mn accounted for 31% of ours and 32% of consensus’ full-year forecasts respectively. The results missed expectation due to weaker-than-expected performance in all 4 segments.

• QoQ: COASTAL registered a decrease in PBT (-77.9% QoQ) due weaker performance across all four segments. Vessel chartering revenue dropped 20% QoQ, primarily because the liftboat was off-hire for scheduled maintenance from mid-June 2024 to the end of August 2024. Meanwhile, the gas segment’s PBT fell 71.4%, mainly due to losses from joint ventures and a lower unrealized foreign exchange gain during the quarter.

• YoY: Similarly to QoQ, PBT plunged 77.9% YoY from 4QFP23 (Jan-Mar 2023) mainly due to lower contribution from all 4 segments.

Impact

• We trim our FY24/FY25/FY26 earnings forecasts by 8.9%/12.5%/13.4% respectively on the back of the weaker than expected 1HFY24 result. In addition, there is uncertainty on renewal of some of the expiring contracts.

Outlook

• PETRONAS has projected a total CAPEX range of RM50bn to RM60bn, and RM300bn over the next five years. COASTAL’s strong balance sheet will provide the Group with ample room to materialise more opportunities in this industry upcycle.

• Recap that COASTAL’s TC7 contract expires in September 2024 while Perdiz plant’s gas sweetening contract expires in December 2025. The group’s main earnings contributor beyond 2025 is only Papan plant. Fortunately, the extension of Perdiz Plant’s contract is likely given that Pemex is negotiating to add LPG processing capability for a 5-year contract extension. Nonetheless, COASTAL needs to increase its source of income to replace some of the expiring contracts.

• Recap COASTAL has been in discussion with luxury hotel operators to be the operator of Pulau Mabul’s luxury resort. The capex for Phase 1 is estimated to be c.RM85mn and the room rate is expected to be more than USD500 per person per night. Considering that phase 1 of the project will take 1-2 years to complete and discussion is still ongoing, we do not expect the Hospitality segment to generate revenue until FY26.

Valuation

• Following the change in our earnings forecasts, we lower our TP to RM1.88/share (previous RM1.90/share) based on sum-of-parts valuation. Downgrade from Buy to Hold.

Source: TA Research - 30 Aug 2024