Earnings growth expected for Coastal Contracts

PETALING JAYA: Coastal Contracts Bhd’s recurring income business model, following its pivot into gas processing and potential upsides from further project wins, are factors that will lift its earnings.

By June 2023, there will be earnings growth on the completion and commissioning of the EMC Papan plant – an engineering, construction, operation and maintenance of a gas conditioning plant and its related infrastructure in the Ixachi field in Veracruz, Mexico.

RHB Research said Coastal is also tendering for an oil processing plant project, which could be awarded in the fourth quarter of 2022 (4Q22).

Referencing the third Ixachi gas plant, tendering is expected to be open at the end 2022 or early next year, RHB Research said.

Other longer-term projects include a gas dehydration plant and gas storage project.

RHB Research believes there is a good chance of Coastal’s JV company winning these projects, given its track record with Pemex, the Mexican state-owned oil company.

Coastal’s JV projects with Pemex include the EMC Papan gas plant in the Ixachi field.

Coastal expects possible extensions for contracts due to expire in 2024. The firm period for the jack up gas compression service unit (JUGCSU) is until February 2024.

The integrated marine oil and gas services and solution provider hopes to seal a first extension of up to three years and possible subsequent extensions of up to five to seven years.

The contract for the Perdiz plant is also expected to be extended by a minimum of three years following the Ixachi field’s forecast gas production peak level which is projected to be in 2026 to 2028.

It said the Teras Conquest 7 vessel recently obtained an extension for a firm period of two years, with another two-year option.

As of financial year 2022 (FY22), Coastal has billed Us$18.2mil (Rm81.96mil) for the permanent primary infrastructure.

The remaining Us$201.8mil (Rm908.81mil) will be billed in FY23.

All payments are expected to be received by the third quarter of 2023, which should ease the group’s gearing, RHB Research said in its report yesterday.

It maintained earnings estimates on Coastal, but lifted the target price to RM2.40 a share.

The key risks to the call include contract termination by Pemex, slower-than-expected progress billings and higher-than-expected operating costs.

Coastal has also released its sustainability goals to reach net-zero by 2050. It will focus on investments in production-related infrastructure projects, with a preference for natural gas, which is a clean energy source with lesser greenhouse gas emissions.

RHB Research added that Coastal also has plans to diversify into the renewable energy sector.