Smoothing sailing for Coastal

Posted on April 9, 2011, Saturday

GIGANTIC: One of Coastal’s offshore landing craft. The company was keen in venturing into new 
areas such as fabrication, repair and maintenance to enhance shareholder value.

KUCHING: Coastal Contracts Bhd (Coastal) was recently listed as one of the top five small cap stocks for 2011 in OSK Research Sdn Bhd’s (OSK Research) Top 50 Small Cap Jewels book.

According to the research firm, Coastal was in ongoing talks with several undisclosed international industry players in relation to setting up joint ventures or strategic stakes in the company.

Coastal which deals primarily in ship building and vessel chartering in the oil and gas industry was keen in venturing into new areas of the industry such as fabrication, repair and maintenance to enhance shareholder value.

Despite Coastal’s impressive share price surge of 61 per cent since January, the analyst believed there was further upside to the stock as the current price was still attractive at a price earnings ratio (PER) of five to six times compared with the oils and gas sector‘s PER of 12 times to 14 times.

In addition, if the company was able to move up the value chain and venture into the fabrication business, investors should be comparing Coastal with its listed peers Kencana Petroleum Bhd and MMHE Sdn Bhd, both of which were trading at a PER of 21 to 27 times, noted OSK Research.

Although Coastal would be the ‘new kid on the block’, OSK Research believed that valuing the company at a PER of eight times was fair, as this comprised only about 30 per cent of its two bigger peers’ valuation and yet provided a 40 per cent upside from the current share price.

Now that Coastal had gained visibility among investors, its share price should trade higher than the current five to six times PER valuation.

The company was believed to have the makings of a merger and acquisition target because the focus was shifted on a potential new business to be injected into the company rather than on its core shipbuilding business.

Based on a PER of eight times for the financial year 2011 earnings per share, the target price for the company was pegged at RM4.85 per share, a boost from the last traded price of RM3.47 per share.

 http://www.theborneopost.com/?p=117349