Coastal- attractive but unexciting

Result Update

Coastal's net profit increased by 5.6% q-o-q but dropped 17% y-o-y to RM30.5 million while revenue increased by 10% q-o-q or 61% y-o-y to RM177 million. Despite higher revenue y-o-y, net profit declined because of adverse impact of USD depreciation & lower margin on sale of vessels by the Shipbuilding division.

The continued slide in profit margin over the past two years reflects the competitive environment in shipbuilding industry. Coastal may have to re-examine its business model of building for inventory, which resulted in huge working capital requirement and being a price-taker in a depressed market.


Table 1: Coastal's last 8 quarterly results


Chart 1: Coastal's last 33 quarterly results 

Valuation

Coastal (closed at RM1.91 at the end of the morning session) is now trading at a PE of 6.5 times (based on last 4 quarters' EPS of 29.35 sen). At this PE, Coastal is deemed fairly attractive.

Technical Outlook

Coastal is range-bound, with support at RM1.75 & resistance at RM2.00. An upside breakout above the RM2.00 horizontal line as well as the intermediate downtrend line at RM2.15 could be the start of an upleg for this stock. Until then, the stock is likely to trade sideway.


Chart 2: Coastal's weekly chart as at Nov 23, 2012 (Source: Quickcharts)

Conclusion

Based on reasonably attractive valuation, Coastal is rated a HOLD. The unexciting technical outlook and the persistence low profit margin argue against a bullish stance for the stock.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Coastal.