Business

Thursday February 12, 2009

Coastal: Cancelled contract not material

By C.S. TAN


PETALING JAYA: The cancellation of a RM5.5mil contract for a tugboat is “insignificant” in Coastal Contracts Bhd’s order book of about RM1.7bil.

The company told Bursa Malaysia on Tuesday that an Indonesian customer sought arbitration following the latter’s termination of a shipbuilding contract. The customer claimed for refund of a down payment of S$460,920 that it had made to Coastal.

A Coastal Contracts' anchor handling tugboat.

Ng Chin Heng, executive chairman of Coastal, said that was a 20% down payment and so the price of the tugboat was S$2.3mil or about RM5.5mil.

While declining to comment on the arbitration case, he told StarBiz over the phone from his office in Sandakan that the contract involved an insignificant sum. The company had, for instance, deposits of about RM400mil from various customers.

Even so, Ng said, every contract and customer is important. At this time, however, there would inevitably be some deferment or cancellation of orders. It appears the reason Coastal announced the contract cancellation on Tuesday was that it involved an arbitration case, and not because it was a financially material event. Furthermore, the down payment had not been booked into Coastal’s sales yet, so there’s nothing to reverse from the profit and loss account.

Up till this point, the cancellations that have confronted Coastal involved orders for a few tugboats only. These do not make a material impact on the company’s order book. Furthermore, given some time, the company will be able to sell off those tugboats to other customers.

Ng Chin Heng

By far, the most important component in the company’s order book involves its contracts for anchor handling tugs (AHTs) which are offshore rig support vessels. These are priced as much as RM50mil each.

“So far, there are no signals for cancellation of any of the AHTs,” Ng said.

Coastal made a net profit of RM65mil for the nine months ended Sept 30, 2008, when it had a debt-to-equity ratio of just 7%.

Taking a different view, AmResearch said in a report yesterday it was downgrading its call on Coastal from a “buy” to a “hold”.

“We remain cautious on the strength of Coastal’s order book given that its Singapore-listed peers have already faced some order cancellations,” the brokerage said. It lowered its forecast earnings for Coastal by 35% to RM67mil in its current financial year.

 
COASTAL :  [Stock Watch]  [News]

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