COASTAL: Operational Expansion Projects Progress Despite Revised Earnings Outlook
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
TA SECURITIES has maintained its “BUY” recommendation for the company, even as it adjusted its future earnings forecasts and lowered its target price. The investment bank noted ongoing progress in key expansion projects and full operational capacity at existing gas processing facilities, balanced against short-term charter visibility challenges for certain assets.
Operational Progress and Capacity
The company provided updates on the construction progress of its 2nd Papan plant and the 2nd Perdiz plant. The 2nd Papan plant is currently approximately 12% complete, with its commercial operation date (COD) anticipated in the fourth quarter of FY26. Meanwhile, the 2nd Perdiz plant has achieved 56% completion and remains on track for COD by end-April or early May. Management expressed confidence that the necessary trust agreement for the 2nd Perdiz plant would be finalised ahead of the targeted COD timeline.
Operationally, the existing gas processing facilities, including the Papan and Perdiz plants, are currently running at full capacity, producing at 345 mmscfd and 185 mmscfd respectively. The Perdiz Plant’s contract is set to expire in December 2027, though extensions are expected, driven by increasing gas production from the Ixachi field.
Earnings Revision and Asset Challenges
Despite the operational advancements, TA SECURITIES has trimmed its earnings forecasts for FY26F, FY27F, and FY28F by 5.2%, 1.0%, and 0.5% respectively. This revision is attributed to more conservative assumptions regarding vessel chartering. Concurrently, the investment bank has lowered its target price to RM1.97 per share (previously RM2.21), based on a sum-of-parts (SOP) valuation, while maintaining a “BUY” rating.
The Jack-up Gas Compression Service Unit (JUGCSU) has remained idle since November 2023 and has not contributed to earnings. Management is actively marketing this asset for disposal and is engaged in preliminary discussions with potential buyers. The disposal timeline remains uncertain, but limited refurbishment works are being undertaken to ensure the unit remains inspection-ready, with costs not expected to exceed RM10 million.
Furthermore, TC7 vessel charter visibility remains short-term. The vessel’s current charter in the Middle East is expected to conclude around mid-March. Discussions for an extension with the existing charterer are ongoing, and the company is also engaging with other potential charterers for a short-term contract to maintain vessel utilisation immediately after the current contract’s completion.
Investment Outlook
The continued “BUY” recommendation reflects confidence in the company’s long-term prospects, particularly its progress in expanding gas processing capabilities and the full utilisation of existing assets. However, investors should note the adjusted earnings forecasts and the ongoing efforts to address idle assets and short-term charter uncertainties.
