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PETALING JAYA: Coastal Contracts Bhd is building a luxurious resort in Sabah and can expect profitability to improve once occupancy rate increases.
That is one of the reasons for TA Research to adjust its earnings forecasts for 2024-2026 by negative 2.7% to 0.8%.
It expects immaterial losses to the group in 2024-2025 during development of the resort. For the financial year ended March 31, 2023 (FY23), Jewel of Mabul Development Sdn Bhd (JOMD) made a net loss of RM487,000, it said after an analyst briefing.
From FY26 onwards when the resort is expected to commence operations, TA Research expects more losses in the initial phase from marketing expenditure to attract tourists, but expects profitability to improve once occupancy rate increases.
It said it will include the tourism venture into its forecast once it has a clearer picture on the resort project.
It maintains its “hold’’ call on the stock with a lower target price of RM1.62 a share from RM1.76 per share based on a sum-of-parts valuation.
Apart from that, Coastal’s jack-up gas compression service unit (JUGCSU) was suspended while the discussion for contract extension is ongoing.
Coastal updated that Mexican state-owned petroleum company Pemex has given the group two options – to continue operating at the existing Canterall Field for two years, or to operate at another field in the Gulf of Mexico for seven to 10 years.
For the latter option, modification to JUGCSU is required, as the water is deeper than at the current field.
TA Research views the update positively as this increases the likelihood of successful contract extension.
Management expects no payment for JUGCSU in the first quarter of 2024 (1Q24) and payment of US$40mil, leading to a one-off reversal of impairment loss on receivables of RM40.6mil in 2Q24, it said.
Coastal also disclosed that Pemex has been increasing the gas processing volume at Perdiz Plant and Papan Plant. Both plants are expected to operate at full capacity in 2Q24. It added that JOMD owns a 31.2-ha land in Pulau Mabul, Sabah. JOMD is undertaking the development of an overwater bungalow resort on the land, which is divided into phase one (18 acres) and phase two (59 acres).
Coastal will inject an additional RM50mil into JOMD via share subscription to complete phase one of the resort project, financed through internally generated funds and/or bank borrowings where the proportion has not been determined.
