Coastal Contracts M&A attractiveness not affected by lacklustre 3Q results
Posted on November 26, 2011, Saturday
LOW MARGIN: Coastal Contracts has been delivering more vessels of lower value such as the tug boats and barges, as opposed to OSV. The gross margin of OSVs is about 30 to 40 per cent, which is three to four times higher than that for non-OSVs.
KUCHING: Coastal Contracts Bhd (Coastal Contracts) remains a potential merger and acquisition (M&A) target for bigger oil and gas (O&G) despite poor third quarter of financial year 2011 results.
The company saw its third quarter revenue and net profit slump by 52.9 per cent and 21.4 per cent respectively quarter-on-quarter. OSK Research Sdn Bhd (OSK Research) attributed such results to the delivery of a smaller number of vessels as well as the delivery of more lower-valued ones.
“Coastal Contracts has been delivering more vessels of lower value such as the tug boats and barges, as opposed to offshore support vessels (OSV). The gross margin of OSVs is about 30 per cent to 40 per cent, which is three to four times higher than that for non-OSVs.
“Year-to-date, there were minimal changes in both nine months cumulative revenue and net profit figures,” the research house explained in its research report.
OSK Research believed that Coastal Contracts remained a potential M&A target despite recent silence on the news front as global economy deteriorated.
The company was appealing due to its attractive valuation and its strategic asset of 100-acre shipbuilding yard in Sandakan – where most of the deepwater activities would be centred in the future. The research house believed that the yard could be converted into an O&G facility for fabrication as well as repair and maintenance jobs.
“We believe that more deepwater activities will resurface in a big way starting 2013, led by the Gemusut Kakap and Malikai O&G fields. By then, the yard will be more valuable, seeing that it would be more cost- and time-effective to operation,” the report added.
Kenanga Investment Bank Bhd (Kenanga Research) cited lower fleet utilisation rate as another
factor for the lacklustre
results this time around. It reported that the third quarter revenue for this segmented fell by 33 per cent to RM1.6 million from the preceding quarter’s RM2.4 million.
“But prospects remain positive as offshore O&G industry is fundamentally strong and the pursuing of offshroe exploration, development and production activities by big players are still active. This implies that the demand for deepwater-capable OSV by oil companies is firm,” affirmed the research report.
It went on to lower its assumptions for Coastal Contract’s vessel delivery to 24 units from 25 units for financial year 2011 and 32 units from the previous 37 units for 2012. The research house subsequently reduced its gross margin estimates to 30 per cent from 32 per cent. The two straight quarters of declining earnings did not stop Kenanga Research from taking a positive stance on the company as it believed that the current hiccup was temporary.
