Coastal likely to clinch new offshore support vessel orders

SHIPBUILDER Coastal Contracts Bhd expects to secure a further RM400mil worth of new offshore support vessels (OSV) orders this year, said executive chairman Ng Chin Heng.

“Apart from the RM105mil sale announced in January and the RM51mil deal announced last week, we are targeting to bag at least an additional RM400mil worth of new OSV orders to add to our already sizeable order book.

“We hope to achieve this before the end of 2008 to close the financial year at a high,” he told StarBiz.

Ng said the Sabah-based company was in “advanced negotiations” with several potential OSV buyers and was confident of closing these deals soon.

Coastal’s order book to build vessels had surpassed the RM1bil mark, he added.

In January, it announced that its wholly-owned subsidiary Coastal Offshore (Labuan) Pte Ltd had secured the sale of two OSVs to an Indonesia buyer for about RM105mil while last week it said it had secured the sale of two units of OSVs to an Egyptian buyer for RM51mil.

Ng said Coastal hoped to maintain a strong double-digit growth in net profit this year, with the OSV segment spearheading the earnings expansion.

At the same time, the company was positive that demand for tugboats and barges – its traditional vessels which are chartered out – would remain significant in line with the rise of global seaborne trade, he said.

Coastal’s vessels are used by agriculture, mining and heavy industry companies to transport grains, coal, iron ores, scrap irons, crude oil, crude palm oil and various other commodities.

“We are also considering the option of retaining a number of OSVs from our current building programme for outright charter to support vessel service providers.

“Alternatively, we can opt to assume the role of a support vessel service provider ourselves to get the ball rolling in this lucrative sector and bolster our recurring income,” Ng said.

He said that despite looming inflationary pressures, shipbuilders were still anticipating growth in orders of OSVs this year.

This is because demand is expected to trend up in line with robust activities in the oil and gas sector, which would drive demand for offshore exploration platforms and rigs. That, in turn, would generate demand for OSVs.

As for competition, although there have been several new entrants into the OSV market on the domestic front recently, Coastal does not expect congestion overnight in the sector.

“There will definitely be a gestation period of a few years between the development and preparation of new shipbuilding facilities and the actual roll-out of finished products,” Ng said.

Additionally, Coastal had moved up the shipbuilding hierarchy by fabricating “sophisticated” OSVs – a segment where barriers to entry were high, he said.

“We believe the pie is large enough to absorb additional OSV supply. Vietnam's oil industry, for example, is booming and that country is expected to have some 900 exploration wells over the next 15 years.

“Meanwhile, Petronas has targeted to explore and develop 500 new wells over the next five years,” Ng said.

Against this backdrop, surely the OSV demand and supply imbalance would continue, he added.

Coastal reported a 102% jump in net profit to RM69.3mil for the financial year ended Dec 31, 2007 while sales grew 82% to RM290.4mil.