PETALING JAYA: With a new charter contract and an extension for an existing one totaling RM252mil, Coastal Contracts Bhd
has secured a significant order book to be executed in 2022 that would provide it higher recurring profit in the long run.
KAF Investment Bank Research believes that the Sandakan-based integrated marine oil and gas services and solutions provider has a good chance of winning another potential major contract from Mexican state-owned petroleum company Pemex for the Ixachi gas field in Mexico if its existing project there is executed without hiccups in the near term.
Coastal Contracts entered into a service agreement with Pemex in late December last year to undertake an onshore gas conditioning plant project, namely EMC Papan Plant. This project has a contract value of US$1.06bil (RM4.69bil).
Back to the latest contract, Coastal Contracts announced on Monday that its subsidiaries recently secured a new charter contract and extension of existing charter contract for one unit vessel and one unit lift boat, respectively.
The contract period for the new charter contract is for a period of five years starting June 2022, while the contract extension is for two years beginning September this year with two annual extension options.
“The total contract value of both contracts is approximately RM252mil, but we reckon that the majority of the contract value secured is for the lift boat asset, for which the end user would be based in the Middle East,” said the research firm in a note.
The group ventured into the lift boat chartering business in February 2021 through a vessel named Teras Conquest 7, which was built back in 2015. The vessel had a remaining contract worth RM67.3mil and spanning 20 months.
Assuming that 95% of the contract is for Teras Conquest 7, the revenue per year from the new replacement contract would be RM60mil, which was higher than its current assumption of RM40.3mil per year, said KAF Research.
“Notwithstanding this, we are holding back from revising our forecasts for now due to increasing risks of supply chain challenges arising globally which could potentially affect the costs of engineering, procurement, construction and commissioning for project Papan,” it added.
The research firm said that while it remains bullish on the company in the short-to -medium term, it intends to “remain more cautious with its assumptions for the time being, albeit cost overrun risks remain low for the project”. It added that the upside bias to earnings was already partially implied in its valuation with 12 times price to earnings. This was already above the historical average, which in its view factored in the potential catalysts in the coming months.
KAF Research maintains a “buy” call on the stock with RM2.36 target price.
