I bought Coastal a year before Covid-19 and sold it early last year. I have 2 Bursa energy services companies that I use as references when hunting for companies in this sector – Deleum and Dayang.

In the past these 2 companies ROE outperformed that of Coastal but over the past 2 to 3 years, Coastal ROE have overtaken them.

When I look at the ROE vs share price trend, I found that currently they are diverging – the ROE is going up while prices are declining.

Is this another opportunity to go in?

Coastal Contracts – a new hope from its pivot in business direction

A decade ago, Bursa Coastal Contracts earnings was from building ships for the oil & gas sector. But the downturn in the oil & gas sector affected this business. The company pivoted to providing gas production platforms.

Today the company is exiting the shipbuilding sector to focus on providing and operating oil & gas production platforms. The company has yet to rebuild its return to the heydays of  shipbuilding. But this new business direction looks more positive than being in the shipbuilding business.

From Shipbuilder to Profit Machine: How Coastal Contracts Reinvented Itself

On a weekly chart for Bursa Coastal Contracts, the technical picture remains bearish. The stock is in a long-term downtrend, with selling pressure evident in the momentum indicators and weak participation reflected in below-average trading volume.

However, the fundamentals tell a different story.

In 2019, Coastal was primarily engaged in shipbuilding, ship repair, and vessel chartering. Yard operations and marine-related activities were the core of its business. Since then, the company has undergone a strategic transformation:

• 2021–2023: Coastal significantly reduced its emphasis on shipbuilding and shifted its focus toward offshore gas infrastructure, particularly in gas processing and compression services.

• 2024: Coastal is now predominantly involved in energy infrastructure support services, delivered through long-term contracts under joint ventures - most notably the Perdiz and EMC gas compression projects in Mexico.

This transformation has placed the company in a stronger profit position. Return on equity rose from 1.2% in 2019 to 9.3% in 2024, reflecting improved capital efficiency and a more resilient income base.

Importantly, this change in business model is fortuitous, given the declining crude oil prices following the global tariff war. In 2019, Coastal's performance was closely tied to oil prices, as demand for newbuild vessels and charter services moved in tandem with offshore exploration activity.

By contrast, in 2024, while it still serves the upstream oil and gas sector via PEMEX, its exposure to volatile crude prices is now indirect.

Yet, the recent decline in Coastal’s stock price appears disconnected from its improved fundamentals and reduced risk profile - as illustrated in the Fundamental Mapper.

If you want to understand more about the impact of declining crude oil prices on other Bursa E&P companies, join me this at today’s podcast

Date: 24 April 2025 (Thu)

Time: 8:30pm

Link: https://www.facebook.com/xifu.my