Monday, November 14, 2011

This Has No Business Staying Below RM2.20

I had to rush this out asap cause as I am writing the stock is moving ...


Strange how things tie up. Readers would have know that I liked Coastal Contracts before, however following their corporate exercise, the stock has not been able to see daylight for a few months. It so happens that I was at the Forbes Asia Awards for the 200 Best In Asia Under A Billion. Well, Malaysia had about 12 awardees and I think 10 were there, so bumped into KKB Engineering people, Paul Chan of HELP and was at the same table, can you believe it, with the Ng brothers of Coastal Contracts. LOL.
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Did I ask about their stock price? No, but they seemed genuinely "happy humble people with a good business", I don't know how else to convey that. Anyways, I digressed. I think Coastal Contracts is the last few remaining deep value-oversold counters available to investors at this juncture. I spoke to Mr. Koon this morning and said I was going to highlight Coastal, and he agreed that the counter is very very cheap as well. Mind you, Mr. Koon already has a large position in Coastal already.


Some would point to the fact that revenue for the last reported quarter jumped over 60% but profit remained the same. Management indicated that margins were tightened somewhat. While that is a concern, we are still talking about a 12 sen EPS a quarter or 48 sen a year annualised. BELOW RM2.00 is less than 4x PER ... hey, I don't think Coastal Contracts is a Chinese shoe-maker, are they???








Currency
:
Malaysian Ringgit (MYR)


SUMMARY OF KEY FINANCIAL INFORMATION
30/06/2011


       
INDIVIDUAL PERIOD
CUMULATIVE PERIOD
       
CURRENT YEAR QUARTER
PRECEDING YEAR
CORRESPONDING
QUARTER
CURRENT YEAR TO DATE
PRECEDING YEAR
CORRESPONDING
PERIOD
       
30/06/2011
30/06/2010
30/06/2011
30/06/2010
       
$$'000
$$'000
$$'000
$$'000
1Revenue
233,849
138,619
389,679
279,761
2Profit/(loss) before tax
47,332
48,583
102,948
91,604
3Profit/(loss) for the period
46,611
48,275
102,703
91,581
4Profit/(loss) attributable to ordinary equity holders of the parent
46,611
48,275
102,703
91,581
5Basic earnings/(loss) per share (Subunit)
12.86
13.32
28.34
25.27
6Proposed/Declared dividend per share (Subunit)
0.00
5.00
5.50
5.00








AS AT END OF CURRENT QUARTER
AS AT PRECEDING FINANCIAL YEAR END
7Net assets per share attributable to ordinary equity holders of the parent ($$)
1.8653
1.6627



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Look at the price chart, its all adjusted for the warrants and bonus shares. However, the chart looks like the stock of a very poorly performing company. Maybe there were too many enthusiastic buyers prior to the corporate exercise, which may have inflated the run up to RM2.70 (ex-all). Looking at how the stock behaved after the exercise, one can only conclude that the many who bought for the corporate exercise SOLD continuously, firstly they had "margin of profits", second;y, the rumbles and tumbles caused by the E.U.-crisis pushed many weak holders to sell as well.


Besides the corporate exercises, the company also paid out a decent interim dividend in early September, meaning controlling shareholders are likely to sell some shares after the exercises than to keep buying after the exercises. Just a hint.


Interim dividend of 21% tax exempt dividend equivalent to 4.2 sen per ordinary share in respect of the financial year ending 31 December 2011.


Kindly be advised of the following :  The above Company's securities will be traded and quoted [ "Ex - Dividend" ] as from : [ 8 September 2011 ] 


One of the key  unknown is the volatility in margins. Many may not know of Coastal's "build and sell strategy". Its an important aspect of their business model, and one that should be viewed positively to better understand their solid business model. What is “Build and Sell” strategy? Coastal is adopting a “Build and Sell” strategy which differs from other industry players  that build on contract basis such as Sealink. The emergence of this strategy was due to the long lead-time for  the delivery of marine engines during 2006 and 2007.


According to the management, if they  were to wait until they secure buyer’s order first then only source for the critical yard space and machine, there is a risk that the different delivery timelines will mismatch. Thus, the “Build and Sell” strategy has allowed the company to overcome the challenges associate with delivery interface and able to secure orders from customers who require shorter time-to-delivery.  On the flip-side,  a prolonged slow down in the demand or oversupply of  OSVs will likely to lead to higher than expected stock-up and putting pressure on the working  capital management. However, the risk is mitigated by: 1) 30% of upfront payment from the  vessels buyers and 2) expected greater demand in OSVs due to the increase in deepwater  exploration activities.
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The Bloomberg screenshot indicates that there are 4 houses covering the stock and their estimated EPS for year ending 2011 ranges from 42 sen to 50 sen, while for year ending 2012 the EPS is estimated to hit 46 sen-61 sen.





The second screenshot  denotes the target prices: the lowest is RM2.51 while Macquarie is the most bullish at RM3.60.





Final reason why Coastal at these levels are insane ... look at the 52 week high-low for the stock on an adjusted basis: 1.59-2.86. The low of 1.59 was achieved back in December last year. Seriously, that was way before the corporate exercises started to move the stock. It got very close to that when it went below RM1.80 recently but this is just begging to be bought at grossly oversold levels.


Plus the company has been buying back shares from the market over the past few weeks, from RM2.10 down to RM1.80, a good indication of where they see deep value.


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. 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.

12 comments:

kerry lee said...

did you ask mr. koon about his future plans on xingquan? i noticed that he has more than 34 million xingquan.

newbie said...

dear SD,
U are so kind giving such a detail ab coastal. Now i have more reasons to go in..

newbie

steveng said...

Fully diluted EPS is only 8 sen for Q2

stocks2trade said...

After I read the first line...i thought it was "Harvest"

MaxWealth88 said...

you did a write-up on success, what is your thought now? it also has no business staying below 90cents right?

thanks
maxwealth88

AmLiange said...

pls la dali, didnt u know that there is an oversupply OSVs in the market? so much so that charter rates find hard time to move up? just because p/e is low doesnt mean its a good buy, its PROSPECTS my fren! Look at our osv companies, like tgoff, alam, perdana, dayang, they are all off the radar with the exception of perhaps bumiarmada. AGAIN MIND YOU DALI, SOMETIMES STOCKS ARE CHEAP FOR A REASON.

Unless coastal builds super high hp vessels then i believe that there is still some upside coz its the high hp vessels that is in demand now.

solomon said...

I am quite upbeat on Coastal and Hibiscus.

A bit surprise quite a number of people own Xingquan....it will go back to the level it used to be if the market is continue to be sizzling hot.....but would the accounting issue of Red chip pose a question....better be conservative.

Went to had Oxtail soup at Rennie, PJ....not bad after this 20 years still good standard.....

All the poor result stock flies like crazy....SC and Bursa joint hands...Wei sound like the market is going to be AGOGO soon....let pick a sleeping counter octagon, see whether it flies or it sleeps. Kanpei....

Kingsmen said...

how about cosco spore as a comparison

Bonescythe said...

When is Cica's turn again?
Got Cica de, I sure hamtam!

newbie said...

dear Amlinge,
it has been my concern why the stock is so cheap..when it reach 1.50++ i am tempted to buy, but i ask myself why there is so many selling pressure..but i couldnt figure it out of course as i am newbie..
Mr dali, has mention few reasons the great selling pressure, there is nothing to do w fundamental..
well..already jump into the boat..so just cross the finger...

brotherlone said...

bro,

they are not building and selling

they are buy, trading from chinese yard and selling to local player

hence why they can't recognise revenue progressively like what a typical shipbuilder would do, it also explains the fluctuating margins.

MoneyWise said...

The 28 cents oer share figure on the quarterly report in 30/06/2011 is before it is adjusted for the share split.

After adjusting for the share split, their half year EPS is only 20 cents.

Pretty misleading...