PETALING JAYA: Coastal Contracts Bhd
’s entry into the renewable-energy (RE) sector is seen as a pivotal step in its strategy to diversify revenue streams and capitalise on the growing demand for green-energy solutions.
RHB Research, which is positive about the move, said in a report yesterday: “We are optimistic about Coastal Contracts’ announcement of its maiden solar project, marking its entry into the RE sector and diversifying its revenue stream.”
“This strategic move into green energy aligns with the sector’s promising growth outlook, underpinned by initiatives like the corporate renewable energy supply scheme and Malaysia’s National Energy Transition Roadmap,” the research house said.
RHB Research maintained its “buy” recommendation on Coastal Contracts, with a target price of RM1.67, based on an unchanged six times estimated price-earnings ratio for the financial year ending Dec 31, 2025 and an 8% environmental, social and governance discount.
Coastal Contracts’ wholly owned subsidiaries, Coastal Solar Sdn Bhd and Pleasant Engineering Sdn Bhd, together with Bina HT Sdn Bhd in a consortium, recently received official notification on the acceptance of offer from the Energy Commission of Sabah.
The consortium will develop a large-scale solar photovoltaic plant with a capacity of 15 megawatt alternating current (MWac) on the east coast of Sabah, with Coastal Contracts having an effective stake of 95%.
The solar power purchase agreement (PPA) with Sabah Electricity will span 25 years, with commercial operations scheduled to start between April 1 and June 30, 2027.
“While details of the PPA are yet to be finalised, management estimates the project’s internal rate of return (IRR) to be around 10% to 12%.
“The higher IRR could be attributed to potentially better tariffs, as Sabah historically offered higher rates under the the second phase of Malaysia’s Large Scale Solar project,” RHB Research said.
The research house added that the estimated capital expenditure requirement for solar projects was around RM2mil to RM2.5mil per megawatt direct current, translating to a total investment of around RM45mil to RM56mil for the 15MWac plant and funding was expected to be structured with an 80:20 debt-to-equity ratio.
“Based on these parameters, we estimate the project to generate earnings of RM2mil to RM3mil a year,” RHB Research said.
“The timely entry into the RE sector aligns well with the industry’s growth trajectory, supported by robust initiatives introduced by the government,” the research house said.
It noted that the tenure of the PPA for the project provide long-term income visibility.
The move would also reduce reliance on Coastal Contracts’ primary income contributor, Petroleos Mexicanos, which would pose concentration risk.
RHB Research commended the group for proactively building a dedicated team to support its transition into the RE sector.
“As a Sabah-based company with a solid financial position, Coastal Contracts has the advantage of being able to capitalise on similar opportunities and potentially acquire additional RE assets in the future,” the research house said.
