Coastal well positioned to deliver long-term value

PETALING JAYA: Coastal Contracts Bhd is well positioned to deliver long-term value, backed by its strong cash reserves and a growing presence in shipbuilding and energy infrastructure.

While short-term earnings for the integrated oil and gas services and energy infrastructure solutions provider are being weighed down by timing-related factors, the group’s medium-term prospects remain intact.

The group’s robust financial footing stems from major contributions from its Mexican joint venture Coastoil Dynamic SA De CV (Cody), and proceeds from the sale of two offshore support vessels (OSVs).

As a result, Coastal now holds approximately RM1bil in cash and cash equivalents, the majority of which is currently placed in short-term investments such as money market funds, said TA Research.

This liquidity, the research house noted, “provides room to pursue key growth initiatives”.

Coastal’s shipbuilding division is expected to drive earnings recovery, TA Research said.

Three utility support vessels are currently under construction, with two scheduled for delivery in the second half of this financial year (2H25), and one in 1H26.

The company also has three high-end OSVs in the pipeline, with staggered deliveries planned from 1H26 through 1H27.

Beyond its core business, Coastal is exploring diversification into high-end hospitality, which would further boost its prospects.

TA Research noted that the group is in discussions with luxury hotel operators to manage a resort development on Pulau Mabul.

“The capital expenditure for the first phase is estimated to be RM85mil and the room rate is expected to be more than US$500 per person per night,” the research house said.

Given the project’s timeline of one to two years and the fact that discussions are still ongoing, TA Research said it does not expect the hospitality segment to generate revenue until 2026.

Meanwhile, Coastal’s near-term financial results reflect a lull in project deliveries.

For the first quarter ended March 31, the group reported core profit of RM17.7mil, which TA Research said was within its expectations at 22% of its full-year forecast, though it missed consensus forecasts at 15%.

“We anticipate earnings to grow from the shipbuilding division with two utility support vessels scheduled for delivery in 2H25,” the research house said.

Quarter-on-quarter, revenue fell 58.2% to RM16.5mil, due to weaker contributions from shipbuilding and ship repair, while pre-tax profit dropped by 84.9%.

Year-on-year, revenue declined by 7.1%, with pre-tax profit plunging 83.3% due to the absence of charter income from an OSV.

TA Research maintained its “buy” recommendation on Coastal with a target price of RM2.04 per share, based on a sum-of-parts valuation.