BUYFAIR VALUE: MYR2.44
Coastal’s 1HFY12 results were below expectations due to the lower number of vessels delivered by its shipbuilding and ship-repair division and lower fleet utilisation rate by its vessel chartering division. We believe that cost overruns continue to hamper the group’s profitability. Hence, we are downgrading our FY12 and FY13 earnings estimate by 21.7% and 22.1% respectively. Nonetheless, our BUY call is maintained as we roll over our valuations to 7x FY13 EPS, albeit at a slightly lower fair value of RM2.44 (previously RM2.50).
Weak performance y-o-y. Coastal’s 1HFY12 results were below consensus and our expectations, making up only 35.6% of our and 26.4% of consensus forecasts. The lower-than-expected results were due to the lower number of vessels delivered (five units compared to seven units in 1QFY12 and eight units in 2QFY11). Hence, despite the higher revenue of RM393.6m, up 1.0% y-o-y, its 1HFY12 net profit shrunk 47.0% y-o-y to RM59.7m. Also, we understand that the group’s vessel chartering division underperformed due to lower fleet utilisation rate and overhead costs.
First interim dividend of 2.8 sen. Coastal also declared a first interim dividend of a 14% tax-exempt dividend, equivalent to 2.8 sen per share. The entitlement date is set on 13 Sep 2012. This represents 43.1% of our total dividend forecast for the year of 6.5 sen (based on revised earnings).
Maintain BUY. We are downgrading our earnings estimates for FY12 and FY13 by 21.7% and 22.1% respectively in anticipation of weaker prospects in the near term. This is mainly due to the continued uncertainty in Europe and the slowdown in global economic growth. Our fair value for Coastal is adjusted downwards to RM2.44 (previously RM2.50), pegged to 7x FY13 EPS (previously pegged to FY12 EPS).
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