Coastal has on June 18, 2014 announced that it has secured contract sales for 6 vessels (3 Offshore Support Vessels (OSVs) and 3 tugboats).
These contracts are cumulatively worth RM180m with deliveries scheduled in 2014 and 2015.
This is a positive news as it showcases Coastal’s ability in securing vessels sales.
Year to date vessel sales for Coastal is RM358m bringing the shipbuilding order book to RM1.2b (significantly higher compared to RM676.0m as at 30 June 2013).
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The shipbuilding division is currently riding on a cyclical uptrend with order book standing at c.RM1.2b. Although net margins have normalised to 15-25% from FY12 onwards, the shipbuilding industry is still considered lucrative, in our view. Management expects the demand for higher specification OSVs to increase in the medium-term supported by the pick-up in offshore activities.
Coastal’s maiden jack-up rig is due to be delivered by end 2014, which will spearhead the company’s move into an asset-ownership model versus the previous build-and-sell model. According to our channel checks, there are >40 jack-up rig contracts in Southeast Asia that are expiring from mid-2013 to 2015, which implies abundant opportunities on the horizon.
Moreover, there could be cross-selling opportunities with its entry into Mexico.
Coastal’s long-term jack-up rig compression unit earnings will kick-start in FY2015.
Rating: Maintain OUTPERFORM
Valuation: We maintain our target price at RM5.94 based on an unchanged 14x PER, which is above the stock’s historical average valuations. However, we believe this is justifiable as it is moving into asset ownership business model (versus just depending on vessel sales). ~ Kenanga Research