Prospects looking up for Coastal Contracts

PETALING JAYA: TA Research has turned optimistic on the prospects of Coastal Contracts Bhd, underpinned by a number of positive developments surrounding the oil and gas services provider.

With discussions still ongoing between Coastal Contracts and Mexico’s national oil company Petroleos Mexicanos (Pemex) on the jack-up gas compression service unit (JUGCSU) contract extension, the research house updated that Pemex is inclined to convert the JUGCSU into mobile offshore production units (Mopus).

TA Research said the move would suggest a high likelihood of a contract extension for Coastal Contracts, with the Mopus operating at a production capacity of approximately 40 barrels per day (bpd).

With the group posting a net profit of RM94.9mil for the first quarter ended March 31 (1Q24), the research outfit deemed this a strong financial showing which fulfilled 43% of consensus’ full-year forecasts.

“We attribute Coastal Contracts’ results to higher volume of gas processed and engineering, procurement and construction (EPC) profit at the Papan Plant.

“We understand that no EPC revenue was billed in 1Q24, suggesting that the strong profit for the quarter should be sustainable throughout financial year 2024 (FY24),” it said in a note to clients.

The research outfit reported that gas processing volumes for Coastal Contracts at both the Mexican Perdiz and Papan plants continue to ramp up as planned, with the Papan plant currently processing at an average of 340 million standard cubic feet per day (mmscfd), close to its maximum capacity of 345 mmscfd.

“Meanwhile, the Perdiz plant’s daily average is hovering at 160 mmscfd, also close to its capacity of 180 mmscfd.

“Since both plants are expected to reach full capacity soon, Pemex plans to expand Papan Plant’s capacity followed by modification of Perdiz Plant to include liquefied petroleum gas or LPG recovery capabilities,” it said.

TA Research added that the expansion plan is expected to finalise by early next year.

On the group’s Pulau Mabul luxury resort project, TA Research said Coastal Contracts has been in discussion with luxury hotel operators to potentially manage the resort, which is situated off Semporna in Sabah.

The research unit believes this significantly lowers the execution risk for the group with luxury hotel operators taking the helm of the resort’s operations, as the capital expenditure for phase one is estimated to be about RM85mil and the room rate is expected to be more than RM500 per person per night.

“Considering that phase one of the project will take one to two years to complete and discussions are still ongoing, we do not expect the hospitality segment to generate revenue until FY26,” it said.

Elsewhere, Coastal Contracts is also targeting two medium-sized production related infrastructure projects like floating production, storage and offloading vessels and Mopus within South-East Asia, participating in bidding with another experienced partner who will hold the majority stake.

TA Research said that the decision was prudent, considering that the group will be loaded with cash of nearly RM1bil once the amount due from the Mexican joint-venture is repaid by 4Q24.

It has upgraded its call on Coastal Contracts to a “buy”, predicting a target price of RM2.