Coastal still potentially strategic O&G partner

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KUCHING: Analysts expected Coastal Contracts Sdn Bhd (Coastal) to still be a potentially strategic partner despite the decision to discontinue the memorandum of understanding (MOU) between its 100 per cent subsidiary, Pleasant Engineering Sdn Bhd and Ramunia Holdings Bhd (Ramunia).

Although the termination of the MOU seemed like a setback for Coastal,OSK Research Sdn Bhd’s (OSK Research) analyst Jason Yap affirmed that the group had invested to transform its Sandakan yard into a repair and maintenance as well as fabrication yard.

This, he said, would enable the company to explore this business opportunity as and when it arose.

“In fact, with the MOU out of the way, we think Coastal would be a more attractive candidate to partner since its asset (yard in Sandakan) was no longer committed to any party,” believed Yap.

To recap, back in January 2011, Oilfab Sdn Bhd (Oilfab), the 51 per cent-owned indirect subsidiary of Oilcorp had accepted Ramunia’s offer to acquire the Pulau Indah integrated fabrication yard and both its moveable and immoveable assets located there for RM83.8 million. Hence, since Ramunia now owned a fabrication yard again and there were still minimally new fabrication jobs being awarded to other fabrication companies besides Kencana Petroleum Bhd and Malaysia Marine and Heavy Engineering Sdn Bhd, it would make sense for Ramunia to terminate the MOU.

Moving forward, Coastal would continue its search for a strategic partner to enhance its shareholder wealth by venturing into the oil and gas (O&G) fabrication and repair and maintenance business.

“I believe they are in talks with both local and foreign strategic partners but nothing has been finalised just yet. Whenever there is an attractive offer, be it partnership or M&A (mergers and acquisitions), I think Coastal is open to consideration,” Yap explained. “Its existing shipbuilding business would continue to provide anchor earnings to the company.”

Yap further elaborated that this could be done through third parties in China which were good enough to fulfill its existing orders, thereby continuing to provide a stable income to Coastal in the event if its Sandakan yard were to be used purely for O&G fabrication or repair and maintenance jobs.

The OSK Research analyst expected sustainable performance from Coastal as it still had a strong orderbook of RM760 million which could keep the company busy over the next 12 months while it proceeded to enhance its shareholders’ value by finding a business partner for the O&G opportunities mentioned earlier.

In conclusion, OSK Research pegged Coastal’s fair value at an unchanged rate of RM4.85 per share based on the existing price earnings ratio of eight times financial year 2011 earnings.