Coastal Contracts Bhd (Symbol & Code: COASTAL 5071) - 20th Sep 2009

(6 years Historical Chart)


Company Background

Coastal Group, founded in 1978, is a Sandakan-based marine incorporation that provides marine products and services to the shipping, oil and gas and commodities industries. The Group main services include build, charter, repair, maintain and trade of marine vessels, ranging from tug boats, oil barges, dumb barges, landing crafts to offshore supporting vessels and more.

The Group operates shipyards that cover more than 90 acres of land. With the aim for high quality, its shipyards are well equipped with advanced technologies, operated by skilled personnel.

The Group has a portfolio of local and worldwide customers from many different backgrounds. Its local customers include logistic service providers, navy, shipping agents and commodities providers. Its worldwide customers come from shipping industries and offshore oil and gas industries specialised in diving support, oil and gas production, dredging work, marine construction and pipelaying.

Fundamentals

ROE: 31.38%

Average EPS Growth Rate: 46.2%

D/E: 0.29

Gross Profit Margin: 31.36%

Average P/E: 7.3

Dividend Yield: 2%

Fair Value: RM 2.12

Current Price: RM 1.96

Recommendation: BUY


SWOT Analysis

Strengths
The Group is one of the leading premier vessel fabricators in Malaysia. Also, it is an established vessel chartering services provider in Southeast Asia, with long term customers chartering its vessels to carry coals, iron ore, metal scraps, stones, crude oil, etc. It also offers maintenance, repair and overhaul services to the Royal Navy, Marine Police and Malaysian Maritime Enforcement Agent, thus giving it a steady stream of income from this segment. For the fourth consecutive year, Coastal Contracts was awarded Forbes' "Asia's 200 Best Under a Billion" in 2009.

Weaknesses
Sometimes, customers can cancel their order for new ships, especially during global economy slow down. However, currently no cancellation of orders is significantly affecting the financial performance of Coastal Contracts.

Opportunities
As there are not many shipbuilding and marine transportation players in this region, there will continue to be demand for its services, especially from Indonesia.

Threats
The Group's main local competitor are Oceanic Engineering Sdn Bhd (shipbuilding), public listed Boustead Heavy Industries Corporation Bhd (formerly PSC Industries Bhd) (heavy engineering and construction, shipbuilding and ship repair, commissioning of offshore installations for the oil and gas industries) and Weidan Marine Services Sdn Bhd (shipbuilding).

CONCLUSION
Coastal Contracts is still experiencing double-digit earnings growth. As the current price is below the Fair Value, I give it a Buy rating.