Mexico oils Coastal’s growth  

COASTAL Contracts Bhd is entering a stronger earnings phase, as a growing portfolio of projects starts to translate into a more diversified earnings base.

The Sabah-based company has built businesses spanning gas processing and energy infrastructure, shipbuilding and vessel chartering, and is now adding renewable energy (RE) to the mix with its maiden solar farm in Sandakan.

Executive chairman Ng Chin Heng says the group had a secured order book of RM555.9mil as at June 30, 2026, while its Mexico-based joint venture (JV) had a further RM7.26bil in secured orders.

“The order book is well diversified, providing the group with good earnings visibility through the second half (2H26) of financial year 2026 (FY26) and into FY27,” Ng tells StarBiz 7.

That visibility showed in the second quarter (2Q26), when Coastal’s net profit surged 15-fold to RM190.5mil from RM12mil in the 1Q26.

The sharp increase was driven largely by a stronger contribution from its Mexico JV, Coastoil Dynamic SA de CV (CD), following the successful completion and commissioning of its second Perdiz Plant and the start of operations and maintenance (O&M) activities.

Coastal owns a 50% stake in CD, which undertakes gas-processing and energy infrastructure projects for Mexico’s state-owned oil company, Pemex.

The venture began with the Perdiz gas-sweetening plant, which started operations in 2021, followed by the much larger Papan gas-processing plant in 2023.

Together, the two plants process enough gas to meet about 10% of Mexico’s daily gas needs.

That scale is reflected in Coastal’s earnings where in 2Q26, its 50% share of CD’s profit came to RM200.7mil.

A major part of that comes from gas processing, which provides CD with a recurring income stream.

Of the JV’s RM7.26bil secured order book, RM4.45bil comes from gas-processing services from four plants.

“At maximum operating capacity, the four plants are expected to generate combined annual earnings before interest, taxes, depreciation and amortisation of about US$140mil,” says Ng.

“The contracts are long term, with the longest running until August 2035.”

CD’s portfolio also provides a mix of project-based income from engineering, procurement and construction (EPC) work, which accounted for the remaining RM2.81bil of its RM7.26bil order book.

A key project under the EPC portfolio is the Separation Plant, which is targeted for completion by end-2027 or early 2028.

Construction began in 3Q26, with revenue and earnings contribution expected to build progressively from FY27.

Ng says the project is expected to make a meaningful contribution to the JV during the construction period.

“CD’s growing EPC portfolio is supported by its track record in delivering similar gas-processing projects for Pemex.

“It has completed three such projects, with a fourth currently under construction.

“The experience should put the JV in a good position to execute future EPC projects efficiently and manage costs, supporting margins as it takes on more work,” he notes.

Ng says CD is looking beyond the Ixachi gas field, exploring opportunities in other Mexican gas fields, including potential shale gas projects, as well as gas-processing projects in other international markets.

In its shipbuilding business, at least three vessels are scheduled for delivery in 2H26, with several more vessels in the construction pipeline for delivery in 2027 and 2028.

Ng says the outlook for offshore support vessels remains constructive, supported by relatively high oil prices and continued offshore exploration, production and field development.

Coastal has also ventured into RE with the 15MW Sibuga Solar Farm in Sandakan, Sabah.

The project is expected to start commercial operations in 1H27 and could generate annual revenue in the range of RM7mil to RM8mil, according to Ng.

The solar farm is expected to generate enough electricity to power approximately 10,000 homes annually.

While modest in size, he says the project provides Coastal with another source of long-term recurring income, with an operating horizon extending to May 2051.

Backed by about RM690mil in cash and cash equivalents as at end-June, Ng says the group’s strong balance sheet gives it room to pursue new growth opportunities.

This is expected to strengthen further, with proceeds from vessel deliveries in 2H26 likely to lift its cash position back to around RM1bil by the end of the period, says Ng.

“Part of the cash will be used as working capital for the shipbuilding programme, which currently has eight vessels under construction.

“We are also pursuing several new projects and merger and acquisition opportunities.”

Nevertheless, Ng says the group will continue to manage its cash conservatively, maintaining sufficient liquidity for existing operations and future commitments, while continuing to pay recurring dividends to shareholders.

On the share-price front, Coastal has recovered from end-April low of RM1, rising to RM1.47 as at Oct 6, up 9% year-to-date as its earnings outlook improved.

TA Research said Coastal’s 1H26 core net profit came in significantly ahead of expectations, accounting for 92% of its full-year forecast and consensus estimates.

The research house raised its target price for the stock to RM2.19 from RM2.15 previously.

Ng is the company’s major shareholder, with a 6.95% direct stake, while a further 40.17% is held indirectly.