Friday, 19 November 2010
Coastal Contracts Bhd
Date announced 19/11/2010
Quarter 30/09/2010 Qtr 3 FYE 31/12/2010
STOCK COASTAL C0DE 5071
Price $ 2.32 Curr. PE (ttm-Eps) 4.22 Curr. DY 1.29%
LFY Div 3.00 DPO ratio 7%
ROE 36.4% PBT Margin 27.9% PAT Margin 27.9%
Rec. qRev 192091 q-q % chg 39% y-y% chq 37%
Rec qPbt 53601 q-q % chg 10% y-y% chq 11%
Rec. qEps 14.80 q-q % chg 11% y-y% chq 11%
ttm-Eps 55.04 q-q % chg 3% y-y% chq 40%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 2% Avg.H PE 5.00 Avg. L PE 4.00
Forecast High Pr 3.04 Forecast Low Pr 1.90 Recent Severe Low Pr 1.90
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 63% Downside 37%
One Year Appreciation Potential 6% Avg. yield 2%
Avg. Total Annual Potential Return (over next 5 years) 8%
CPE/SPE 0.94 P/NTA 1.53 NTA 1.51 SPE 4.50 Rational Pr 2.48
Already Owned: Buy Hold Sell Filed Review (future acq): Filed Discard: Filed
Guide: Valuation zones Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Given that offshore shipbuilding activity is slowly perking up, Coastal Group has modest optimism of clinching new contracts to add to its vessel sales order book. The Group also expects steady income stream from its ship chartering division through continued utilisation of the Group’s fleet in coastal transportation and in various oil and gas support services. It is anticipated that future participation in the offshore structure fabrication business will be earnings-accretive and reduce the Group’s dependency on shipbuilding orders. The Group’s strong financial footing paired with low level of borrowings will further shield it from major financial distress.
With more deepwater oilfield developments off the western coast of Sabah coming on stream, Coastal Group is looking to enter a new phase of growth by diversifying into offshore structure fabrication to gain industry knowledge of the oil and gas engineering, procurement and construction business. Central to this plan are the Group’s strong foundation in marine structures and the geographical proximity of the Group’s 52-acre fabrication yard to the heart of Sabah’s growing oil and gas activities. Upgrading of infrastructure is currently at advanced stage to expand the fabrication yard’s capabilities.
Oil prices have risen above USD85 a barrel as improvement in the manufacturing sector in the U.S. and China, the world’s two biggest economies, boosted optimism that growth in global oil consumption will remain strong. Also, the U.S. Federal Reserve’s second round of quantitative easing to unleash more dollar into the economy had weakened the U.S currency’s value, which in turn made the dollar-denominated crude oil relatively cheaper for buyers using other currencies. This latest oil price development in the current environment of depleting oil reserves and increasing long-term energy demand will drive up offshore exploration, development and production activities going forward. The resultant capital investments in upstream oil and gas sector would spur additional requirements for offshore support vessels (“OSVs”).
Barring adverse changes in the global and regional economic outlook, Coastal Group is on track to deliver solid revenue and earnings growth in 2010, backed by the strong revenue visibility of the shipbuilding division’s vessel sales order book.