Delivery track record puts Coastal Contracts in good stead
by Yvonne Tuah, yvonnetuah@theborneopost.com. Posted on March 12, 2015, Thursday
KUCHING: Coastal Contracts Bhd’s (Coastal Contracts) delivery track record, diversification strategy and decision to dispose of a potentially idle offshore asset have been viewed favourably by analysts despite the group’s view of several expected challenges in the market.
RHB Research Sdn Bhd (RHB Research) yesterday retained itsflattish shipbuilding bottomline growth forecast as it opine revenue and offshore support vessel (OSV) customer demand may recover once oil price rises to its US$80 per barrel (bbl) FY16 assumption.
“Coastal Contracts cited challenges from current industry conditions and banks renegotiating for less favourable margins for financing,” it further explained.
“Recent industry news reported that interested parties were keen to purchase the jack-up (JU) rig, with a high likelihood that the proceeds would be able to cover the original cost.
“While this was not confirmed at this juncture, we view it positively. It is also in line with management’s guidance since last year, for a disposal being an option.
“Amid the current oil & gas environment when asset owners are facing distressed cash flow scenarios, we see Coastal Contracts being able to remove potentially idle offshore assets.”
RHB Research also expect future accretion from Coastal Contracl’s gas compressor service unit (GCSU) charter, which will contribute RM30 million to the bottomline on a full-year basis from FY16.
The GCSU unit is said to be on track for delivery by the second quarter of 2015, in line with Coastal Contracts’ expectations.
The research firm also said Pemex had recently held discussions with its oil service and rig providers to renegotiate daily rates after its board approved cutting US$4.2 billion from its 2015 budget (originally reported at US$27.3 billion), implying a 15 per cent cut in capital expenditure.
“Coastal Contracts said it had not received any notification from Pemex for negotiations at this juncture.
“In our view, if this happens it could reduce our discounted cash flow (DCF) valuations for the GCSU (about RM0.84 of our sum of parts). Assuming a 15 per cent cut in charter rates, this will reduce our target price by RM0.13 per share and earnings forecast by three to seven per cent,” it projected.
Nevertheless, it said it does not see greater risk from termination, as Coastal Contracts will receive a satisfactory amount of compensation from a termination clause.
Meanwhile, for 2016, RHB Research said Coastal Contracts could see a margins compression on shipbuilding revenue, as vessel prices and enquiries for OSV orders are on a decline.
“Management still expects customers to order OSVs worldwide, especially on segments that are in demand.
“This is spurred by replacement opportunities, as some operators prefer younger vessels (10 to 11 years),” it added.
While its 2015 shipbuilding revenue will be aided by an outstanding RM1.5 billion in vessel sales, Coastal Contracts said it had not received any customer requests to defer vessel deliveries for FY15, RHB Research noted.
“Year to date, the company had closed RM190 million worth of vessels sold and achieved RM802 million sales in 2014 (versus management’s guidance of RM1 billion for FY14, and RM1 billion to RM1.2 billion for FY15).
“Finally, Coastal Contracts guided that FY15 shipbuilding profits were expected to be at the same level as FY14.”
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Mar 12 2015, 05:09 PM
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good luck and gpd speed.
good rig those maersk ones. good food good facility.
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