Coastal Contract (Coastal) reported disappointing FY12 results, with net profit accounting for only 90.2% and 87.5% of our and consensus estimates respectively. While revenue expanded 6.3% y-o-y, its net profit plunged 37.8% y-o-y due to narrower margins derived from the sale of its vessels. We lower our FY13 earnings forecast by 21.8% and introduce our FY14 estimates. In view of the lack of catalysts for the near term, we are downgrading the stock to NEUTRAL, with its new fair value (FV) at RM1.90, pegged to 7x its 12-month forward earnings.
Below estimates. Coastal reported FY12 net profit that was below our and consensus estimates, accounting for only 90.2% and 87.5% of the respective forecasts. Although its revenue increased 6.3% y-o-y and 9.3% q-o-q, its net profit plunged by 37.8% y-o-y and 7.0% q-o-q due to narrower margins derived from the sale of vessels. Despite delivering only four vessels in 4QFY12 compared to seven vessels in 3QFY12, its revenue increased from the sale of high-end offshore support vessels (OSVs) in 4QFY12, which command higher prices and generate more revenue.
A second interim dividend of 2.8 sen. This represents a yield of 2.8% and a dividend payout ratio of 22.8% based on its FY12 numbers. We tweak our dividend payout downwards from 6.5 sen to 6.0 sen as we adjust our FY13-FY14 payout ratios to be in line with this year’s payout ratio (FY12: 22.8%, FY13: 22.6%, FY14: 22.3%).
Lowering FY13 estimates. Due to the lack of catalysts in the near term, we lower our FY13 earnings forecast by 21.8%. While the OSV market is on a gradual road to recovery, orders will continue to be slow in FY13. Our channel checks suggest that the current demand for OSVs could be met by the current supply of vessels in the market. We also take the opportunity to introduce our FY14 estimates.
Downgrade to NEUTRAL. Given that the prospects of the company remains muted in the near term, we are downgrading the stock from BUY to NEUTRAL, in line with our earnings downgrade. Our FV is reduced from RM2.44 to RM1.90 (pegged to 7x of its 12-month forward earnings).
Source: OSK
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