KLCI : 1,721.07
Price Target : 12-Month RM 3.35 (Prev RM 2.70)
Pieces falling into place
1H13 earnings in line; higher operating margin offset weaker revenue growth (delivered fewer vessels)
Declared 3sen DPS, within expectations
Replenished order book to fuel earnings growth; securing a jack-up rig contract could rerate the stock
Maintain BUY with higher RM3.35 TP
Higher-spec vessels saved the day. 2Q13 net profit grew 11% y-o-y (+3% q-o-q) to RM32m, driven by higher operating margin (22.5% vs 18.6% in 2Q12). The stronger profitability was supported by the delivery of more advanced vessels which fetched a premium vs. standard specification OSVs. Coastal delivered only three vessels in 2Q13 compared to five in 2Q12, which led to lower revenue (-11% y-o-y; -15% q-o-q).
However, we expect more vessels to be delivered in 2H13 but at more moderate pricing. 1H13 earnings constituted 45% and 47% of our and consensus’ estimates respectively. Coastal declared a first interim dividend of 3sen/share in the quarter.
Larger order book, diversification plans underway. We are optimistic of Coastal’s prospects as orders start to return (it has secured RM1bn in sales orders; order book reached RM1.2bn on 12 Aug, sustainable till 2014). Vessel pricing seems to have stabilised with demand gradually absorbing supply as aging OSVs are replaced and global O&G activities pick up. The acquisition of a jack-up rig from CIMC Yantai, expected in 1H14, should provide strong fixed revenues once it secures a contract (we estimate c.15% of FY15F revenue), possibly closer to rig delivery. Potential FSO/FPSO ventures in Indonesia are likely long-term strategies given the large capital required to acquire the rig.
Maintain BUY. The stock’s valuation has risen from 6x FY14F EPS three months ago to 8x currently following Coastal’s acquisition of the jack-up rig. We upgrade TP to RM3.35 after applying a higher 10x multiple to Coastal’s FY14F EPS; this is still a 29% discount to our target valuation for Perisai Petroleum.
Publish date: 27/08/13