based in Central America. Nine units are powered by 2,400 BHP (brake horse power) engines
and are between 29 metres and 30 metres in length, one unit is 26 metres in length of close
to 1,650 BHP, while the remaining unit is of 24 metres and 1,200 BHP class.
The revenue from these vessel sales will be mostly recognised this year. These tugs, which
are widely deployed for both harbour and coastal use, will unlikely be employed in the oil &
gas industry, which employs higher-premium anchor-handling tugs with higher safety
specifications and engine capacities.
On average, these twin-screw tugboats are worth below US$2mil per unit while a 5,000 BHP
anchor handling tug and supply vessel is priced at US$12mil-US$15mil each. As such, we
expect the pre-tax margins from the sale of these vessels to be lower than the 30%
registered by Coastal’s shipbuilding segment in FY10.
With the fresh tugboat sales, Coastal’s outstanding order book has risen by 10% to
RM665mil currently – which is expected to be recognised until FY12F. As this represents
only 1x FY11F revenue, we maintain FY11F-FY13F earnings for now.
The recent ODS Petrodata conference indicated that charter rates for anchor handling tugs
and platform supply vessels are only expected to improve towards end-FY12F and end-
FY13F, respectively, given that an estimated 400 vessels are expected to be delivered
globally over the next 2-3 years.
As such, we do not expect a significant increase in additional vessel sales this year despite
Coastal securing cumulative sales of RM329mil to date this year, which translates to 50% of
FY11F revenue.
While the group hopes to venture into fabrication of oil & gas structures, this hinges on
Coastal’s proposed joint-ventures or potential merger with a licensed domestic operator.
But these merger and acquisition plans are currently at an exploratory stage with no firm
commitments from any parties.
Coastal currently trades at an FY11F PE of 6x, which is at a 50% premium to the group’s
three-year average of 4x. Hence, we maintain our HOLD call on Coastal with an unchanged
fair value of RM3.35/share based on FY11F PE of 6x, at parity to its seven-year average.