PETALING JAYA: Coastal Contracts Bhd
could offer a special dividend if its joint venture (JV) in Mexico successfully refinances its loan and repays the group at least US$155mil in the next two weeks.
The cash injection from the Mexican JV would see the net cash position of the provider of integrated energy services and infrastructure swell to about RM1bil or RM1.90 a share by the end of this year, RHB Research said in a report on the company.
“This robust cash position could lead to a special dividend, particularly ahead of the impending tax on dividends.
“Moreover, it strengthens Coastal’s ability to pursue new opportunities, including renewable energy projects, such as large-scale solar farms, where the group is currently bidding for projects in Sabah,” the research house said, adding that Coastal had demonstrated its commitment to sustainability through initiatives such as investments in natural-gas projects and a long-term roadmap to achieve net-zero emissions by 2050,
Coastal is set to receive another US$10mil from the JV in the first quarter of next year (1Q25) as well.
The research house, however, warned Coastal could take a one-off impairment in the next quarter on receivables from Petroleos Mexicanos (Pemex) related to a jack-up gas compression service unit (JUGCSU).
“Given that Pemex is currently facing financial challenges, it is prioritising payments, leaving the expired JUGCSU contract lower on the list. If payment is not collected by 4Q24, the full amount of US$33.2mil will be impaired, with any subsequent recovery treated as a reversal,” RHB Research said.
Contract-extension negotiations for the JUGCSU are progressing slowly and may extend beyond the year-end timeline, the research house said.
This has led RHB Research to adjust its financial year 2025 (FY25) and FY26 earnings for Coastal downward by 9.3% and 4.4% respectively to reflect lower contributions from the asset.
“Pemex is inclined towards converting the JUGCSU into a mobile offshore production unit for a five-year extension at the current field. The alternative is relocating the unit to a new field, which is 20m deeper and would require leg extensions for a five to 10-year term,” the research house said.
The downside risks from the JUGCSU might be buffered by expansion of either the Perdiz or Papan plants in Mexico to accommodate the anticipated rise in production from the Ixachi field, which Pemex expects to double by 2025.
Both the Papan and Perdiz gas processing plants are currently operating at near-maximum capacities of 345 million standard cubic feet per day (mmscfd) and 185mmscfd, respectively.
Coastal’s management hopes to expand either plant by the first half of next year, subject to Pemex’s decisions.
“Additional projects being considered include a gas dehydration plant, the Ixachi separation plant, gas conditioning plant and a gas storage project,” the research house said.
Despite suggesting a special dividend may be on the cards for Coastal, the capital investments required and cut in earnings forecast has led RHB Research to lower its target price for the company to RM1.67 a share from RM1.85 earlier.
The valuation is based on an unchanged six-times FY25 price-earnings multiple.
RHB Research maintained its “buy” call on the stock.
