A FUND manager, who tracks small-capitalised stocks, sees Coastal Contracts Bhd as one of the few niche companies with strong earnings growth potential.
“Compared with other similar companies based in Singapore, Coastal Contracts’ forward valuation is the cheapest. Its return on equity (ROE) ratio forecast of around 20% for this year is also attractive,’’ he said.
The stock, however, remained outside the coverage of most analysts, given the company's lack of liquidity and small size.
Currently, about two-thirds of Coastal Contracts shares remain with the company's main shareholders. Its market capitalisation stands at about RM200mil.
Recently the group announced plans to issue up to 66 million new shares, or 20% of its current paid-up capital, via private placement.
The move will not only help the company raise fresh funds already earmarked for expansion, but also improve its shareholding spread.
In fact, a few institutional buyers have expressed interest in the placement and have made plans to visit the group’s shipyard in Sandakan, Sabah, to see Coastal Contracts’ operations first hand.
“Its ability to build sophisticated marine support vessels tailored for the offshore oil and gas platforms offers an exciting growth prospect,’’ the fund manager with a local asset management firm said.
Coastal Contracts first sold its shares to the public at RM1.60 per share and was listed on Bursa Malaysia’s main board in August 2003.
The initial public offering raised total gross proceeds of RM21.3mil, of which RM19.3mil was utilised for manufacture and chartering of vessels.
In November last year, the company subdivided its shares on a one-into-five basis, as part of its strategy to improve trading volume.
Prior to the split, the stock was trading above RM3 or about double its offer price in less than a year.
Coastal Contracts uses its tugboats and barges to transport coal, fuel oil, granite and other minerals. It also has the capability to build ships, including anchor-handling tug (AHT), which sets it apart from other local competitors.
“We are still bullish on Coastal Contracts prospects on expected strong demand for AHT vessels and its stable chartering business,’’ an analyst at a bank-backed stockbroking firm said.
This was even after SCOMI GROUP BHD, which indirectly acquired stakes in vessel chartering group, Chuan Hup, recently came into the picture. “The two companies (Coastal Contracts and Chuan Hup) have always been competitors, but we believe the pie is large enough for everyone,’’ the analyst said.
Scomi’s main strategy is geared towards securing Petronas related vessel chartering contracts, while Coastal Contracts is more of an indirect supplier to other oil and gas contractors.
Coastal Contracts’ chartering services are also backed by the long-standing relationship with Indonesian oil and gas companies.
Analysts expect a surge in earnings for the first two quarters of 2005 as vessels ordered earlier would be delivered.
They concurred that Coastal Contracts’ management had also indicated that based on current orders, the company might well surpass previous financial performance by a comfortable margin.