A Look At Coastal Contracts

Dear valuelife,

• Whats your view on Coastal?managemt and outlook?

Do understand that I am not a legal INVESTMENT advisor and all I can do is offer you some second opinions, ok?

Here's the data for Coastal Contracts that I have compiled from Bursa Malaysia website.

Do click on the picture itself for the larger view.

1. First thing, there was a massive five for one split back announced back in 2004. ( see announcement here ) ( The important note for me in such announcement is the total number of shares after assuming everything proceed as announced and for Coastal the number of enlarged shares after end of the exercise is 460.920 million shares)(Note also, at this moment of time, Coastal number of shares in the market is 352.786 million shares)

2. The big change in fortunes happened after its fy 2006. Hence it would be useful if one reads what was announced in its Q4 earnings notes.

• The Group registered profit before tax of RM12.3 million (from both continuing and discontinued operations), up 38% from RM8.9 million (excluding negative goodwill) achieved in the preceding quarter. When compared with the RM2.0 million recorded in the corresponding quarter a year earlier, current quarter's profit before tax has increased over six-fold. This was vastly due to higher number of vessels sold in the current quarter. On the whole, current quarter's profit margin before tax of 21% was on par with that in the previous quarter. Profit margin before tax in the same period last year was lower at 13% owing to relatively higher costs.

3. Coastal performance for its fy 2007 was just as impressive (2007 Q4 earnings was announced back in Feb 2008).

Here is a screenshot from its earnings notes.

4. As you can see clearly on the TTM line (trailing twelve months) line in the first table, despite the record earnings, Coastal Contracts balance sheet has actually gone weaker and weaker. Look at the cash vs total loans.

5. The Trade receivables really jumped in its last reported quarterly earnings. Why? I do not know but if you are interested in the stock, this is an issue, yes?

6. I would look at Coastal's Segmental Reporting made in its most recent quarterly earnings. Why? It's always good to understand where and how the money is made. That's my opinion.

The following is the screenshot from Coastal last reported quarterly earnings.

And as you can see shipbuilding and ship repairs is its bread and butter.

And this is a mega big business but the issue that comes straight to mind is the credit issue problems for global shipping companies mentioned in my Baltic Dry Index postings. And in the world where global credit is a problem, I cannot help but be sceptical and advise caution. For example, we have already seen that trade receivables soared in Coastal's last reported quarterly earnings and then we need to take into consideration that Coastal's cash flow is not one to be proud off and that despite the record earnings recorded by Coastal, Coastal cash balances had actually deteriorated over the years.

And what about the correlation between Coastal's recent earnings with the recent grandest bull run in commodity prices? Didn't Coastal benefited from it? And now that a clear and drastic reversal has been seen, surely one would be weary? And with global shipping charter rates plunging, surely this would have a bad impact on Coastal Contract's customers and if its customers are hit, then surely Coastal Contracts would be impacted too!

These are some of the issues regarding Coastal for me. I hope my second opinion helps and as always, do understand I am just another person like you and I could always be flawed in my thinking.

And oh yes, the earnings growth recorded by Coastal had been impressive over the years but there are some notable underline weakness.

Ps. I am well aware of the recent plunge in Coastal's share price too! Coastal last traded price is 1.38! Cavaet my friend.