Coastal Contracts’ (Coastal) 9MFY12 results came in below our and consensus forecasts, making up 68.6%/61.9% of the respective full-year estimates. While the near-term prospects for its shipbuilding business remain muted, we think the group’s earnings potential could grow next year through the diversification of its product offerings. Hence, we are making no changes to our earnings forecast. Maintain BUY with an unchanged RM2.44 fair value (FV), pegged to an existing 7x FY13 EPS.
Within expectations. Coastal’s 9MFY12 results came in slightly below our estimates but below consensus forecasts, making up 68.6%/61.9% of the respective full-year estimates.While its revenue climbed 10.2% q-o-q and 14.2% y-o-y, net profit edged up only 5.6% q-o-q and tumbled 35.3% y-o-y, mainly due to narrower margins from the sale of vessels by its shipbuilding division, as well as weakening US dollars which resulted in foreign exchange losses.
Shipbuilding prospects remain muted. We opine that the near-term prospects for the shipbuilding industry should remain muted. Based on our industry findings, although charter rates have been recovering since last year, most shipyards currently have excess capacity. Our industry sources indicate that the current market fundamentals are in line, with the supply of vessels – especially offshore support vessels – meeting the market demand, hence resulting in slower vessel orders. Also, concerns over the European debt crisis has made it very difficult to secure finance, thus prompting more customers to continue to hold back new vessel orders as it may not be in their best interest to hold depreciable assets in such times.
What’s next? Management guided that the group plans to boost its product offerings by building more expensive, technologically-advanced and deepwater-capable vessels in the future, as it anticipates demand to rise with the increase in deepwater fields. Also, the group intends to diversify into offshore structure fabrication business and to move into the upstream segment of the oil & gas industry.
Maintain BUY. We are maintaining our BUY recommendation on the stock with an unchanged FV of RM2.44, pegged to 7x FY13 earnings. Near-term prospects remain muted due to the uncertainty in Europe, a slowdown in global economic growth, as well as limited financing in the markets.
FYE Dec
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Revenue
|
466.1
|
675.1
|
719.1
|
723.8
|
735.4
|
Net Profit
|
162.7
|
200.8
|
191.0
|
131.4
|
164.1
|
% chg y-o-y
|
68.3
|
23.4
|
-4.9
|
-31.2
|
24.9
|
Consensus
|
-
|
-
|
-
|
145.8
|
170.0
|
EPS
|
34.6
|
42.7
|
40.6
|
27.9
|
34.9
|
DPS
|
5.0
|
5.5
|
6.0
|
6.5
|
6.5
|
Dividend yield (%)
|
2.5
|
2.8
|
3.0
|
3.3
|
3.3
|
ROE (%)
|
42.5
|
36.4
|
27.0
|
15.7
|
16.8
|
ROA (%)
|
16.2
|
16.9
|
16.1
|
10.2
|
11.3
|
PER (x)
|
5.8
|
4.7
|
4.9
|
7.2
|
5.7
|
BV/share
|
0.95
|
1.34
|
1.59
|
1.88
|
2.17
|
P/BV (x)
|
2.1
|
1.5
|
1.3
|
1.1
|
0.9
|
EV/EBITDA (x)
|
5.4
|
4.5
|
4.9
|
6.3
|
5.1
|
Results Table (RMm)
FYE Dec
|
3Q12
|
2Q12
|
Q-o-Q chg
|
YTD FY12
|
YTD FY11
|
Y-o-Y chg
|
Comments
|
Revenue
|
177.1
|
160.7
|
10.2%
|
570.7
|
499.9
|
14.2%
|
Increased q-o-q and y-o-y due to more vessels delivered in the current quarter compared to the previous quarters (7 units this quarter compared to 5 units in both 2Q2012 and 3Q2011
|
EBIT
|
29.1
|
29.8
|
-2.2%
|
89.3
|
140.0
|
-36.2%
| |
Net interest expense
|
0.0
|
0.0
|
0.0%
|
-0.1
|
-0.5
|
-78.7%
| |
Associates
|
0.0
|
0.0
|
-
|
0.0
|
0.0
|
-
| |
PBT
|
29.1
|
29.8
|
-2.3%
|
89.2
|
139.5
|
-36.1%
| |
Tax
|
1.4
|
-0.9
|
-264.8%
|
1.0
|
0.1
|
577.7%
| |
MI
|
0.0
|
0.0
|
-
|
0.0
|
0.0
|
-
| |
Net profit
|
30.5
|
28.9
|
5.6%
|
90.2
|
139.4
|
-35.3%
|
Increased marginally q-o-q and dipped y-o-y due to the narrower margins derived from the sale of vessels by its shipbuilding division
|
EPS
|
6.3
|
6.0
|
18.7
|
28.8
| |||
DPS
|
0.0
|
2.8
|
2.8
|
0.0
| |||
EBIT margin
|
16.4%
|
18.5%
|
15.6%
|
28.0%
| |||
NTA/Share
|
1.67
|
1.69
|
1.67
|
1.49
|
EARNINGS FORECAST
FYE Dec (RMm)
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Turnover
|
466.1
|
675.1
|
719.1
|
723.8
|
735.4
|
EBITDA
|
172.8
|
209.1
|
192.2
|
149.0
|
186.3
|
PBT
|
163.4
|
200.0
|
191.6
|
135.5
|
172.7
|
Net Profit
|
162.7
|
200.8
|
191.0
|
131.4
|
164.1
|
EPS
|
34.6
|
42.7
|
40.6
|
27.9
|
34.9
|
DPS
|
5.0
|
5.5
|
6.0
|
6.5
|
6.5
|
Margin
| |||||
EBITDA (%)
|
37.1
|
31.0
|
26.7
|
20.6
|
25.3
|
PBT (%)
|
35.1
|
29.6
|
26.6
|
18.7
|
23.5
|
Net Profit (%)
|
34.9
|
29.7
|
26.6
|
18.2
|
22.3
|
ROE (%)
|
42.5
|
36.4
|
27.0
|
15.7
|
16.8
|
ROA (%)
|
16.2
|
16.9
|
16.1
|
10.2
|
11.3
|
Balance Sheet
| |||||
Fixed Assets
|
113.5
|
118.9
|
98.5
|
150.8
|
155.1
|
Current Assets
|
1029.8
|
1113.9
|
1042.3
|
1286.8
|
1304.5
|
Total Assets
|
1143.3
|
1232.8
|
1140.8
|
1437.6
|
1459.5
|
Current Liabilities
|
661.1
|
571.6
|
353.1
|
514.3
|
393.9
|
Net Current Assets
|
368.7
|
542.3
|
689.2
|
772.5
|
910.6
|
LT Liabilities
|
23.9
|
15.2
|
16.9
|
15.9
|
16.2
|
Shareholders Funds
|
458.3
|
646.1
|
770.8
|
907.4
|
1049.4
|
Net Gearing (%)
|
6.8
|
2.8
|
0.6
|
0.1
|
-0.4
|
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