Poorer set of results for Coastal Contracts
KUALA LUMPUR: It was a weaker year for Coastal Contracts Bhd (Coastal Contracts) as its core net profit for financial year 2018 (FY18) rounded up to RM28.3 million – after stripping-off foreign exchange, inventories written-down and impairments – which came in below expectations.
Kenanga Investment Bank Bhd’s research team (Kenanga Research) said the FY18 core net profit only made up 89 per cent of its full year earnings forecasts for the group.
The earnings disappointment was due to lower-than-expected vessel deliveries, it said.
“Year on year (y-o-y), FY18 core earnings plunged 60 per cent, in tandem with the revenue drop of 62 per cent, mainly due to lower vessel deliveries during the year of two vessels versus eight vessels in FY17,” it detailled in a report yesterday.
No dividends were declared, as expected.
“The fourth quarter of 2018 (4Q18) core earnings of RM28.3 million plummeted 93 per cent y-o-y, in tandem with 85 per cent deterioration in revenue, as no vessels were delivered during the quarter in contrast to four vessels in 4Q17.
“Quarter on quarter (q-o-q), core net profit tanked 58 per cent as its vessel chartering segment slipped into core losses of RM2.9 million (after removing forex gains of RM20.1 million) during the quarter.”
In 4Q, Kenaga Research saw that Coastal Contracts had written down inventories of RM518.2 million as well as registering an impairment loss of receivables of RM70.6 million. Added together, this represented a 34 per cent write-off from its book value since the end of FY17.
“We believe these write-off and impairments depict its bleak outlook, especially in its shipbuilding business,” it added. “As we understand, there have been no new orders announced since February 2016.
“Following the disappointing results, we trimmed FY19E earnings by 10 per cent to account for lower vessel deliveries.
“With the company’s book value lowered following the write-down and impairments, our target price is also cut to RM1.05 per share,” it said, adding that it downgraded the stock to a market perform call.
“Our downgraded call is premised on the lacklustre outlook in the shipbuilding division due to a lack of new orders from services players as the OSV market is still reeling from an oversupply situation.”