The secured projects include the second onshore gas conditioning contract on the Ixachi Field in Mexico with its joint-venture company, according to RHB Research. The project, which is the largest contract obtained by the group, is valued at some RM4.5bil in totality. (File pic shows Coastal Contracts' shipyard in Sandakan)
KUALA LUMPUR: Coastal Contracts Bhd
could see a rise in earnings this year and the financial year ending June 30, 2023 (FY23) from projects it has secured.
The secured projects include the second onshore gas conditioning contract on the Ixachi Field in Mexico with its joint-venture company, according to RHB Research.
The project, which is the largest contract obtained by the group, is valued at some RM4.5bil in totality.
This consists of about RM1.1bil for engineering, procurement, construction and commissioning (EPCC) and about RM3.4bil for the operations and maintenance portion, it said.
“The Ixachi field is expected to be the highest producing onshore field in Mexico once it achieves peak production.
“This is about 1,100 million standard cubic feet per day, which is projected to be in 2026-2028.
“As such, Mexico’s national oil company Petroleos Mexicanos (Pemex) will require more conditioning gas plants to keep up with the production rate,” RHB Research said.
“This will benefit Coastal, which is eyeing comparable long-term contracts since its strategy is to strengthen the recurring income stream,” it added.
RHB Research also said that some of the group’s future prospects include Pemex’s third gas conditioning plant for the Ixachi field, an oil processing plant, a gas storage project and a gas dehydration plant.
The research house has initiated coverage on Coastal with a “buy” call with a target price of RM2.14.
“Our target price is pegged to a nine times the FY23 forecast price-to-earnings ratio, at its five-year mean.
“We are upbeat on the stock on the basis of its long-term recurring income business model and Coastal establishing itself as a gas-processing player – which could lead to more contract wins,” it said.
The research house noted that the company’s peers are those involved in the offshore service vessels and production charter landscape.
“Our valuation is at a premium to its peer average.
“This is because of its long-term growth potential led by EPCC earnings, combined with an effective long-term recurring income business model underpinned by the gas-processing division,” RHB Research said.
Coastal’s strategy has shifted away from the offshore support vessel build-and-sell business model.
This is due to the excess supply of vessels globally amid the severe oil price downturns.
Management has said that the group is focusing on production-related infrastructure.
It is targetting contracts with solid counterparties, firm contract periods and strong contract costs.
