KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) is upbeat on Coastal Contracts Bhd given the refinancing of its joint venture (JV) loan is near completion and payment will be made in the fourth quarter of 2024 (Q4 2024), positioning it to support new projects.
It said that the group will be receiving payment of US$155 million in Q4 2024 and an additional US$10 million in Q1 2025 from its JV, potentially closing the year with nearly RM1 billion in net cash.
"This robust cash position could lead to a special dividend, particularly ahead of the impending tax on dividends.
"Moreover, it strengthens Coastal Contract's ability to pursue new opportunities, including renewable energy (RE) projects, such as large-scale solar (LSS) farms, where the group is currently bidding for projects in Sabah," it said in a note.
However, the firm said that the contract extension negotiations for the jack-up gas compression service unit are progressing slower than anticipated and may extend beyond the year-end timeline initially guided.
RHB Research adjusted its financial year 2025 (FY25) and FY26 earnings for the company downwards by 9.3 per cent and 4.4 per cent respectively, reflecting lower contributions from the unit.
In February, Coastal Contract's 50 per cent-owned JV secured a contract extension for the provision of gas sweetening services in Mexico from Petroleos Mexicanos (Pemex).
The company said in a filing with Bursa Malaysia that its JV unit, Coastoil Dynamic SA De CV inked an addendum to the contract with Pemex.
RHB Research said that Coastal Contract has flagged the risk of a one-off impairment next quarter on receivables from Pemex related to its gas compression operations.
"Given the latter is currently facing financial challenges, it is prioritising payments, leaving the expired unit contract lower on the list. If payment is not collected by Q4 2024, the full amount of US$33.2 million will be impaired, with any subsequent recovery treated as a reversal."
The firm maintained a 'Buy' on the stock with a lower target price of RM1.67.