MORNING CALL: 13/9/23

TA Securities upgraded Coastal Contracts to “buy” with a higher target price of RM2.47 per share. Here’s why.

Transcript

00:00 Our Struck and Focus this Wednesday morning is coastal contracts.

00:05 TA Securities upgrading the counter from neutral to buy, with a higher target price of RM2.47,

00:12 up from RM2.37 previously.

00:15 This after attending an analyst briefing with management.

00:18 Coastal contracts ended trading yesterday at RM1.99.

00:21 Key takeaways according to TA, first up, the group is liable up to US$30.4 million due

00:28 to a delay penalty in achieving a critical construction milestone for its Papan plant

00:33 in Pemex's Ixachi gas field in Mexico.

00:36 Fortunately, the research house says no further delay penalty is expected as the group has

00:42 achieved all the critical construction milestones for the Papan project.

00:46 Secondly, with the Mexico state-owned firm drilling new wells and upping the production

00:50 capacity of Ixachi field by the first half of FY24, both coastal contracts says Perdes

00:56 and Papan plants are also expected to ramp up processing capacity.

01:01 Thirdly, management is confident of obtaining Perdes plants' contract extension.

01:06 The group is currently finalising the terms with Pemex, with indicative extension duration

01:11 of 2 to 3 years.

01:13 TA raising its FY24 to FY26 earnings forecasts by 13.6% to 20%.

01:20 After hiking its tariff for the Papan plant, in line with the revenue breakdown for the

01:25 plant given by management, it said it upgraded its recommendation to buy and hiked its target

01:30 price to RM2.47 based on sum of parts valuation.

01:34 So what's the consensus?

01:36 According to Bloomberg data, there is TA's sole buy and two more hold recommendations

01:41 from CAF Equities and RHB Research.

01:44 Average target price RM2.29.

01:46 Coastal contracts last settled at RM1.99, so that's a potential upside of about 15%.

01:53 [Music]