Thursday, March 10, 2011

A Re-Look At Coastal Contracts

If you consider the price movements of Coastal Contracts over the past 4 weeks, it has ridden out the calamitious weather very well. In fact, since mid-Feb, it has surged even despite the overall down market. I like the fact that it has not dropped that much during the peak sell down of all stocks, but has taken the slightly better market conditions to move up again.

Their most recent results for the quarter ended Sep 2010, showed strong numbers again. Revenue was RM192m compared to RM140 same quarter in 2009. Net profit was RM53.6m compared to RM47.9m a year ago. Cumulative 9 months net profit was RM145.2m or net EPS of just over 40 sen. You can tag another 15 sen for the final quarter and you are looking at 55 sen EPS for a RM2.60 stock.

The surge this time looks good and should be a prelude to some exercise to unlock values as obviously the shares have been overlooked by many and/or lacked liquidity. A simple move to split the shares and/or free warrants will spark sustained interest. Timing for such moves looked good judging from the way it traded over the past 4 weeks.





Tuesday, May 04, 2010

Is Coastal Contracts Better Than Sealink?

Coastal’s FY09 results were above expectations, mainly attributed to the higher number of offshore support vessels (OSV) built - which fetched higher margins than tug boats and barges. Coastal’s FY09 net profit of RM163mil was above expectations, coming in 15% above FY09F earnings of RM141mil and 12% above street estimate of RM145mil. This stemmed from delivery of an additional unit of high-value offshore support vessel, which bumped up progress billings and margins in 4QFY09.






I compared Sealink to Coastal thanks to a reader who has wisely highlighted the major peer-peer comparison (KC):
Sealink / Coastal 09Growth (revenue) -18% / +34% (shows growing business and reach) 09Growth (Profit) -9% / +69% (additional revenue resulting in good margins maintenance, unlike some companies who will sacrifice margins for more revenue) Return of Equity +12% / +36% (both are excellent in deployment of capital) Return of inv cap +8% / +29% (both are excellent in deployment of capital) Times int earned +6.6 / +45 (a comfort buffer) Price/earnings 6.7 / 5.6 (ignored by institutional investors) Price/Book 0.8 / 2.0 Dividend yield 6% / 1.2%

KC said: "Hence except for its price/Book and Dividend yield, Coastal is way ahead in its profitability and attractiveness as an investment. Coastal may need to conserve cash for its profitable operations. Earnings may be more important than assets." What KC said is true and correct. Sealink is good, and may be a value trap if investors were to focus too strongly on its P/Book ratio of just 0.8x compared to Coastal's 2.0x. The higher valuation accorded to Coastal has a lot to do with its margings, earnings and book orders. On the second point of it being a lower yielding stock than Sealink, again KC is absolutely spot on. You want to be with a company that is reinvesting for much higher returns - which in this case, investors should not be too perturbed about Coastal's low dividend yield.




I still think Sealink is undervalued, but probably not as much as Coastal. If I think Sealink is worth 80 sen, then Coastal is worth at least RM3.40.

Updated: April 14, 2010


Ivory Asia Sdn. Bhd.

17.99%


Ivory Asia Sdn. Bhd.

14.15%


Lembaga Tabung Haji (TH)

8.44%


Fong Thau PANG

6.72%


Rickoh Corporation Sdn. Bhd.

6.06%


Fong Thau PANG

6%


Fong Thau PANG

5.44%

The company’s strength lies in its strong orderbook, which has helped it sustain robust numbers quarter after quarter.To date, they should have more than RM1.3bn. Coastal’s FY09 net profit surged 68% YoY to RM163mil due to:
- Delivery of higher value vessels in FY09 compared to lower proportion of lower value tugs and barges in the previous year. This subsequently caused a 6-percentage-point increase in shipbuilding/repair EBIT margin to 32%. Given the strong performance so far, management continues to be confident of registering such margins over the next two years as most of the group’s shipbuilding, thus making sure that costs have been locked-in.
- Higher utilisation of the group’s charter fleet of 24 vessels, which caused charter revenues to rise 8%,stock currently trades at a bargain FY09F PE of only 4x - a 60% discount to the local oil
& gas industry’s 10x. This is unjustified given Coastal’s sizeable order book of RM1.3bil, which will last for another two years. The group is currently building over 100 vessels - under different stages of construction - with a potential value of RM2bil. Half of these vessels have been sold with the remaining units comprising of lower priced tugs and barges.



Since 31 December 2008, Coastal’s inventories have risen by 28% to RM781mil. While this translates to a high stock holding period of 609 days, this appears to be a norm for the shipbuilding industry. Management affirms that this is not alarming as working capital of the group is rising in tandem with construction progress of its huge order book. There was a rise by RM523mil in deposits from customers - being progress payment for vessel construction. Coastal has also received payment of RM82mil from trade receivables after 4QFY09.


It should at least make RM200m net profit in 2010, which translates into a net EPS of 56 sen. IT is just trading at a ridiculously low PER.


NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

7 comments:

surewin1woh said...

Hi SD,

Do you have any updates for EAH?

Thx.

ronnie said...

Dear SD,

There is a party that closes Coastal up almost everyday if you look back at transactions at around 4.40-4.50pm every trading day. An operator.

Buyer said...

Hi S.Dali,

Good day.

Thanx for sharing again.
Could you pls advise what is the typical timeframe, as a Value Momentum Investor will hold on?

FOr the case of coastal, We know that Coastal is good fundamental stock from May2010 (from your blog), is about 10months time before you re-post it again. It is definately not a long time for 10months, but just would like to get gauge what is timeframe we should roughly set if the good stock is not moving, WAITING is a paint!!

Appreciate you could put in your 2 cents!!

Regards,
Buyer

Salvatore_Dali said...

surewin

eah is looking at a couple of interesting projects ... i think the next 2-4 months would be interesting

buyer,

as i am a value momentum investor, i usually hold for less than 1-2 months, if it does not pan out like Coastal, I will wait for momentum to gather speed again (like Now0 before re-entering.

cina.fong said...

Market is as gloomy as the weather Mr SD. Nothing to say but the obvious.

newbie said...

Dear SD,
Coastal now has dropped to 1.80
May i know such a good fundamental stock, is it worht getting it now .it is almost 5 months after your recommendation?
wondering what cause the drop?

12 Nov 2012
newbie

newbie said...

dear SD,
I am a value buyer and still learning in investing. I have been following ur blog
I learnt that u are momentum buyer,
i have been screening through some stock recommended by Mr koon and you like coastal contract and Rsawit.
The recommendation from Mr koon on coastal is ar May 2011..
Now is nov 2011 and the price has dropped to 1.80 from the high of 2.67 around jul..
i think it is really cheap buy it now and hold it...but i just wondering what cause a drop so much since then?
could u help me with this. A great thank you...
have a good day
newbie