COASTAL: Strategic Project Reinforces Future Earnings, Buy Rating Affirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Coastal Contracts Bhd’s Mexican joint venture, Coastoil Dynamic SA De CV (CODY), in partnership with SIC and Nuvoil, has received an Emergency Work Instruction (EWI) from Petróleos Mexicanos (PEMEX). This instruction greenlights immediate commencement of the design, supply, construction, installation, and commissioning of a second gas sweetening plant with a capacity of up to 200 mmscfd at the Ixachi Field, Mexico. The EWI was issued under PEMEX’s emergency exception process to address urgent gas flaring issues.
Project Significance and Risks
While formal contract execution, including commercial terms and duration, is still under negotiation with a target of March 2026, work has already begun. Although commencing work ahead of contract finalisation could be perceived as a risk, TA Securities believes this is mitigated by PEMEX’s established emergency exception framework and Coastal’s extensive operating history with the state-owned oil company. The project is strategically significant, reinforcing Coastal’s relationship with PEMEX and validating CODY’s execution capabilities. Execution and cost risks, typical for EPC projects, are deemed manageable.
Future Earnings and Outlook
The new gas sweetening plant is expected to contribute positively to Coastal Contracts Bhd’s earnings and net assets from financial year 2026 (FY26) onwards. Early work commencement significantly improves revenue visibility and supports the regularization of the contract by March 2026. Despite the absence of disclosed contract value and tenure, TA Securities maintains its forecasts, assuming a modest earnings uplift from FY26, with a stronger contribution projected for FY27 as construction activities intensify. The new 200 mmscfd plant represents approximately a 29% expansion to the current Ixachi capacity base of 680 mmscfd.
Analyst Recommendation
TA Securities has maintained its “Buy” recommendation for Coastal Contracts Bhd. The investment bank affirmed its target price of RM2.21 per share, based on a sum-of-parts (SOP) valuation, reflecting the positive long-term impact of its ongoing projects.
