PETALING JAYA: TA Research is optimistic about prospects for marine products and services provider Coastal Contracts Bhd
, underpinned by clear earnings visibility from its strong order book and the anticipation that its Mexico plants could operate at maximum capacity soon.
In a report yesterday, TA Research said Coastal Contracts’ current expanded order book stands at RM4.3bil with a potential addition of RM666.9mil from contract extensions.
The research house noted that at the same time, the group’s tender book is also standing at RM5.2bil.
“Some of the group’s targets are one production-related infrastructure project and three renewable energy projects - mainly solar and wind farming in South-East Asia, although the group believes that these contracts are unlikely to be announced in the near term.”
On the other hand, TA Research said the group’s Mexico joint venture company Coastoil Dynamic SA de CV is also bidding for four gas-related projects in Mexico, before revealing that over the longer term, Coastal Contracts plans to transition from gas-related infrastructure to green energy.
The research house however pointed out that despite improvement in earnings for the group in recent quarters, it plans to expand further before finalising its dividend policy.
Additionally, TA Research said the company’s Papan plant in Mexico’s Ixachi oil field has completed commissioning tests in March and will start contributing to processing revenue in the group’s fourth financial quarter ending June 30.
“Coastal Contracts’ management team expects both the Perdiz and Papan plants to operate at maximum capacity in six to eight months once Pemex (Petroleos Mexicanos, Mexico’s state-owned petroleum company) builds more wells at the Ixachi field to increase the field’s production capacity.
“We note that in the group’s discussion to extend the Perdiz plant’s contract period, Pemex is considering adding naphthalene and liquefied petroleum gas recovery features to the plant.”
TA Research believes the aforementioned consideration by Pemex is positive for Coastal Contracts.
The research house said the company could be on track to gain an extension of contract and may be able to negotiate a higher tariff, which has increased by 7% to 8% in the quarter ended March 31.
TA Research reiterated its “buy” call on the counter, with a target price of RM3.10.
