COASTAL: Core Earnings Align with Forecasts, Strategic Expansion Underway Despite Forex Impact

Core earnings for the first half of fiscal year 2025 (1H25) were in line with market expectations, demonstrating resilience despite significant foreign exchange headwinds. The company reported a core profit of RM42.0 million for 1H25, which met 53% of both TA Securities’ and consensus full-year forecasts. This performance was achieved after excluding a substantial net forex loss of RM48.0 million, which otherwise would have significantly impacted reported earnings.

Segmental Performance Review

Operational performance across key segments presented a mixed picture. The Gas Processing division saw its Profit Before Tax (PBT) decline by 31.0% year-on-year to RM12.0 million, down from RM17.4 million in the prior year. This reduction was primarily attributed to lower interest income following significant loan repayments by the joint venture in December.

Conversely, the Vessel Chartering segment recorded a 13.1% year-on-year increase in revenue, contributing to a 9.3% year-on-year improvement in PBT to RM6.6 million (from RM6.1 million). This turnaround was driven by the return to service of a key liftboat after its scheduled maintenance.

The Shipbuilding and Shiprepair division exhibited a strong recovery, with revenue surging to RM2.0 million from RM0.2 million previously. This surge, fueled by stronger contributions from ship repair contracts, allowed the segment to turn its PBT around to RM0.7 million, from a Loss Before Tax (LBT) of RM1.3 million. Operational improvements and enhanced cost efficiencies were key drivers of this positive shift.

Outlook and Strategic Growth

Looking ahead, the company maintains a robust financial position, underscored by approximately RM1 billion in cash and cash equivalents. A majority of these funds are strategically placed in short-term investments, such as Money Market Funds, providing substantial flexibility to pursue key growth initiatives.

The shipbuilding division is poised for expansion, supported by a healthy order book. This includes three utility support vessels currently under construction, with two slated for delivery in the second half of 2025 and one in the first half of 2026. Additionally, the pipeline features three high-end Offshore Support Vessels (OSVs) with staggered deliveries anticipated between the first half of 2026 and the first half of 2027.

Diversifying its business portfolio, the company is also in discussions with luxury hotel operators to manage its Pulau Mabul resort. Phase I of this hospitality venture is estimated to incur approximately RM85 million in capital expenditure, with targeted room rates exceeding USD500 per night. Contributions from the hospitality segment are expected to commence from fiscal year 2026 onwards, as Phase I is projected to take 1-2 years to complete.

Analyst’s View and Recommendation

According to TA Securities’ latest report, the firm reiterated its “BUY” recommendation for the company, maintaining its target price (TP) at RM2.04 per share, based on a sum-of-parts valuation. This target price represents a significant upside of 70.7% from the last traded price of RM1.23. The firm highlighted the company’s strong balance sheet and growth prospects across its core and new ventures as key supporting factors for its positive outlook.