Company Update

2 August 2016

Coastal Contracts Bhd

MARKET PERFORM
Price:
Target Price:

Venturing into Indonesian LNG Market

RM1.50
RM1.61

By Sean Lim Ooi Leong l sean.lim@kenanga.com.my

We believe the 49% stake acquisition in JSK Gas is strategic
to penetrate the growing Indonesian LNG market while
establishing a recurring income stream which helps to
reduce reliance on shipbuilding. No changes to our current
forecast pending further managements guidance. All in, we
maintain MARKET PERFORM call with TP at RM1.61 pegged
to CY17 PER of 8.0x.

Share Price Performance

2.40
2.30
2.20
2.10
2.00
1.90
1.80
1.70
1.60
1.50

USD20.8m for 49% stake in JSK Gas. Yesterday, COASTAL

announced that it has entered into a MOU with PT. Jaya Samudra
Karunia Internasional (JSK) for the acquisition of 49% equity interest in
PT. Jaya Samudra Karunia Gas (JSK Gas) for total consideration of
USD20.8m (equivalent to RM83.6m). COASTAL is expected to fund the
acquisition internally without any external borrowings.

1.40
Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

Jan-16

Feb-16 Mar-16 Apr-16 May-16 Jun-16

Jul-16

Aug-16

KLCI
YTD KLCI chg
YTD stock price chg

1665.23
-1.6%
-18.5%

FRU and FSU contracts in hand. JSK Gas through its subsidiaries
owns a Floating LNG Regasification Unit (FRU) with a maximum
production capacity of 50 mmscfd. The FRU, under a 5-year Build,
Operate and Transfer Agreement by PT Pelindo Energy Logistik (PEL)
has commenced operations in 2Q16 to supply regasified natural gas to
the 200MWh power plant operated by PT Indonesia Power in Bali,
Indonesia. Furthermore, JSK Gass indirect subsidiary has also been
awarded a 10-year firm charter contract with an extension option of 13
years to provide a Floating Storage Unit (FSU) to receive LNG from the
LNG carrier on a scheduled basis. JSK Gas has yet to finalise the
project details but aims to deliver the FSU by earliest end of 2017.

Stock Information
Shariah Compliant
Bloomberg Ticker
Market Cap (RM m)
Issued shares
52-week range (H)
52-week range (L)
3-mth avg daily vol:
Free Float
Beta

Yes
COCO MK Equity
795.8
530.6
2.45
1.44
192,924
55%
1.8

Recurring income with minimum profit guaranteed. While the details

of the contracts cannot be disclosed due to confidentiality clause, we
are generally positive as it allows COASTAL to tap into the Indonesian
LNG market with existing contracts in hand to generate recurring
income. In addition, the investments IRR is guaranteed by its partner,
JSK, allaying potential downside risk. Based on our ballpark estimates,
(assuming FRUs capex to be USD40m and net margin of 20%), the
contract value for FRU is anticipated at USD74m (equivalent to
RM297m) with net contribution of approximately RM6m/annum to
COASTAL. Meanwhile, we are estimating the potential FSU contract to
be USD120m (equivalent to RM478m) with net profit of RM4m/annum.

Major Shareholders
IVORY ASIA SDN BHD
THAU PANG FONG
LEMBAGA TABUNG HAJI

No changes to our forecast. Contribution from FRU contract should be

kicking in from 2H16. However, we are maintaining our forecasts at this
juncture pending further guidance from management and 6Q16 results
announcement by end of the month.
Maintain MARKET PERFORM. We believe the strategy of penetrating
into the Indonesian LNG market is positive to COASTAL to reduce its
reliance from its shipbuilding segment, which faces order book
replenishment risk in view of continuous oversupply in OSV market.
Maintain MARKET PERFORM call at TP of RM1.61 pegged to CY17
PER of 8.0x.
Downside risks to our call include: (i) lower-than-expected margins
and vessel sales, and (ii) delay or cancellation of jack-up rig gas
compression unit.

PP7004/02/2013(031762)

28.5%
11.6%
4.7%

Summary Earnings Table

FYE Jun (RM m)
2016E*
2017E
2018E
Turnover
1,945.2
724.2
681.0
EBIT
198.4
98.0
78.0
PBT
196.6
122.0
106.4
Net Profit (NP)
186.8
114.5
99.5
Core NP
186.8
114.5
99.5
Consensus (NP)
196.0
131.3
137.5
Earnings Revision
EPS (sen)
35.1
21.5
18.7
EPS growth (%)
-2.1
-38.7
-13.1
NDPS (sen)
5.3
0.0
0.0
NTA/Share (RM)
3.0
3.2
3.3
BV/Share (RM)
3.0
3.2
3.3
PER
4.5
7.4
8.4
Price/NTA (x)
0.5
0.5
0.5
Net Gearing (x)
0.3
0.1
-0.1
Dividend Yield (%)
3.4
0.0
0.0
*FY16E consists of 18 months as the company has
changed their financial year end from December to
June.

Page 1 of 4

Coastal Contracts Bhd

Company Update

2 August 2016
Malaysian Oil & Gas Sector Comparisons
Company

Price
(RM)

0.31
0.75
1.50
1.00
1.53
2.40
1.08
0.58
6.64
0.225
23.30
22.16
1.43
1.89
0.87
3.07

ALAM
ARMADA
COASTAL
DAYANG
DIALOG
GASMSIA
MHB
PANTECH
PCHEM
PERISAI
PETDAG
PETGAS
SKPETRO
UZMA
WASEONG
YINSON
Simple Average
Weighted Average

Market
Cap (RM
m)
286.6
4,370.4
795.8
876.8
8,065.7
3,081.6
1,728.0
354.0
53,120.0
275.0
23,147.5
43,848.7
8,568.8
549.9
672.3
3,347.8

PER(x)
CY15

CY16

CY17

-10.5
16.0
5.8
7.5
29.6
24.1
20.8
9.1
19.1
38.7
29.3
24.6
11.3
14.0
29.4
20.5
18.1
22.3

52.4
24.1
7.5
26.3
28.5
20.6
21.4
8.5
17.4
17.2
26.9
24.0
35.8
11.3
39.4
22.1
24.0
22.9

51.2
10.0
3.7
10.8
25.0
20.6
22.1
7.6
14.8
13.5
24.8
23.7
42.5
8.9
10.5
14.7
19.0
20.9

Est.
Div.
Yld.
(%)
0.0
1.3
3.5
0.0
1.5
3.6
0.0
4.0
2.9
0.0
2.6
2.9
0.7
0.0
0.0
0.5

His.
ROE

His.
P/BV

(%)

(x)

CY16

CY17

-3.1
3.6
8.6
9.8
13.1
11.9
3.1
7.5
11.8
0.8
16.0
15.6
5.9
11.4
2.0
8.7

0.3
0.6
0.5
0.7
3.9
2.9
0.6
0.7
2.2
0.3
4.7
3.8
0.7
1.6
0.6
1.8

-120.0
-33.5
-22.9
-71.4
4.0
17.3
-2.8
7.2
9.7
125.4
8.7
2.5
-68.4
24.2
-25.4
-6.9

2.3
139.8
101.4
142.8
14.1
0.0
-3.2
11.4
17.6
27.5
8.7
1.3
-15.8
27.5
277.2
50.0

NP Growth (%)

Target
Price
(RM)
0.29
0.77
1.61
0.93
1.62
2.62
1.25
0.54
7.31
0.26
25.40
21.95
1.48
1.88
0.86
3.90

Rating

UP
MP
MP
UP
MP
OP
MP
MP
OP
MP
OP
MP
MP
MP
OP
OP

Source: Kenanga Research

This section is intentionally left blank

PP7004/02/2013(031762)

Page 2 of 4

Coastal Contracts Bhd

Company Update

2 August 2016

Income Statement
FY Jun (RM m)
Revenue
EBITDA
Depreciation
Operating Profit
Other Income
Admin Exp
Interest Exp
Associate
Exceptional Items
PBT
Taxation
Minority Interest
Net Profit
Core Net Profit

2013
761.6
158.6
-7.5
143.6
11.9
-17.8
-0.1
1.0
0.0
150.9
0.7
0.0
151.6
151.6

2014
877.2
200.6
-7.5
185.6
19.5
-23.2
-0.1
2.0
0.0
192.9
-2.2
0.0
190.8
190.8

2016E*
1,945.2
242.7
-29.5
198.4
6.0
-17.0
-16.5
3.0
0.0
196.6
-9.8
0.0
186.8
186.8

2017E
724.2
205.2
-51.6
98.0
7.0
-6.0
-31.6
4.0
0.0
122.0
-7.5
0.0
114.5
114.5

2018E
681.0
185.1
-51.6
78.0
7.0
-6.0
-27.2
4.0
0.0
106.4
-6.9
0.0
99.5
99.5

Balance Sheet
FY Jun (RM m)
Fixed Assets
Intangible Assets
Other FA
Inventories
Receivables
Other CA
Cash
Total Assets

2013
69.3
5.9
14.4
961.4
178.5
1.0
319.0
1,549.5

2014
59.7
5.6
12.0
1,209.6
338.7
0.3
469.7
2,095.7

2016E*
733.8
5.6
12.0
1,526.9
509.0
0.0
155.1
2,942.4

2017E
686.1
5.6
12.0
1,221.5
194.2
0.0
499.8
2,619.3

2018E
638.4
5.6
12.0
977.2
136.1
0.0
758.1
2,527.5

Payables
ST Borrowings
Other ST Liability
LT Borrowings
Other LT Liability
Minorities Int.
Net Assets

522.4
11.4
0.4
4.6
2.5
0.0
1,008.2

559.3
95.5
1.1
3.5
1.4
0.0
1,434.8

763.5
563.0
12.7
7.5
1.4
0.0
1,594.4

291.4
621.1
4.9
8.5
1.4
0.0
1,692.2

204.2
532.9
3.4
8.5
1.4
0.0
1,777.1

Share Capital
Reserves
Equity

96.7
911.5
1,008.2

106.4
1,328.5
1,434.9

106.3
1,488.0
1,594.4

106.3
1,585.8
1,692.2

106.3
1,670.8
1,777.1

Cashflow Statement
FY Jun (RM m)
2013
Operating CF
92.7
Investing CF
-0.9
Financing CF
-23.0
Change In Cash
68.8
Free CF
91.8

2014
-120.1
10.6
247.1
137.6
-109.5

2016E*
-131.3
-703.6
437.1
-397.8
-835.0

2017E
165.7
-3.9
34.2
195.9
161.8

2018E
219.9
-51.6
-107.7
60.7
168.3

Financial Data & Ratios

FY Jun (RM m)
2013
Growth
Turnover (%)
-2.6
EBITDA (%)
26.9
Operating Profit (%)
28.6
PBT (%)
28.6
Core Net Profit (%)
27.9

2014

2016E*

2017E

2018E

15.2
26.5
27.8
13.8
25.8

121.7
21.0
10.4
-2.0
-2.1

-62.8
-15.5
-27.9
-58.2
-38.7

-6.0
-9.8
-13.1
-28.5
-13.1

Profitability (%)
EBITDA Margin
Operating Margin
PBT Margin
Core Net Margin
Effective Tax Rate
ROA
ROE

20.8
18.9
19.8
19.9
0.5
11.2
15.0

22.9
21.2
22.0
21.7
-1.1
10.5
13.3

12.5
10.2
10.1
9.6
-5.0
7.4
11.7

28.3
13.5
16.8
15.8
-6.2
4.1
6.8

27.2
11.4
15.6
14.6
-6.5
3.9
5.6

DuPont Analysis
Net Margin (%)
Assets Turnover (x)
Leverage Factor (x)
ROE (%)

19.9
0.5
1.5
15.0

21.7
0.4
1.5
13.3

9.6
0.7
1.8
11.7

15.8
0.3
1.5
6.8

14.6
0.3
1.4
5.6

Leverage
Debt/Asset (x)
Debt/Equity (x)
Net (Cash)/Debt
Net Debt/Equity (x)

0.0
0.0
-303.0
-0.3

0.0
0.1
-370.7
-0.3

0.2
0.4
415.4
0.3

0.2
0.4
129.8
0.1

0.2
0.3
-216.7
-0.1

28.5
6.4
2.1
2.1
5.5
4.1
0.8
0.8
2.8

35.9
7.2
3.0
3.0
4.4
4.6
0.5
0.5
1.5

35.1
5.3
3.0
3.0
4.5
3.4
0.5
0.5
2.8

21.5
0.0
3.2
3.2
7.4
0.0
0.5
0.5
1.7

18.7
0.0
3.3
3.3
8.4
0.0
0.5
0.5
0.5

Valuations
EPS (sen)
NDPS (sen)
NTA (RM)
BVPS (RM)
PER (x)
Net Div. Yield (%)
P/NTA (x)
P/BV (x)
EV/EBITDA (x)

Source: Kenanga Research

*FY16E consists of 18 months as the company has changed their financial year end from December to June.
Fwd PER Band
PRICE (RM)

Fwd PBV Band

PER 3.7 x

PER 6.4 x

PER 9.0 x

PER 11.7 x

PER 14.3 x

PRICE (RM)

PBV 0.5 x

PBV 0.8 x

PBV 1.1 x

PBV 1.5 x

PBV 1.8 x

8
7

5
6

5
4

3
3

2
1

0
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

0
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Source: Kenanga Research

PP7004/02/2013(031762)

Page 3 of 4

Coastal Contracts Bhd

Company Update

2 August 2016
Stock Ratings are defined as follows:
Stock Recommendations
OUTPERFORM
MARKET PERFORM
UNDERPERFORM

: A particular stocks Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular stocks Expected Total Return is WITHIN the range of 3% to 10%.
: A particular stocks Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).

Sector Recommendations***
OVERWEIGHT
NEUTRAL
UNDERWEIGHT

: A particular sectors Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular sectors Expected Total Return is WITHIN the range of 3% to 10%.
: A particular sectors Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).

***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to
the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.
Published and printed by:
KENANGA INVESTMENT BANK BERHAD (15678-H)
8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my

PP7004/02/2013(031762)

Chan Ken Yew

Head of Research

Page 4 of 4