It increased Coastal’s earnings projection by 13.6% to 20% for the financial year ended June 30, 2024 (FY2024) till FY2026.

The upward revision was due to an adjustment to the tariff estimate for the Papan plant, in line with the revenue breakdown given by the company’s management.

The Papan plant is an onshore gas sweetening plant located in the Ixachi gas field in Mexico. The gas field is controlled by state-owned Petróleos Mexicanos (Pemex).

In a note today, TA Securities has upgraded Coastal Contracts Bhd to “buy” at RM1.98 with a higher target price (TP) of RM2.47 from RM2.37.

The research house also said that Coastal feels confident of obtaining a contract extension for the Perdiz plant, which is another gas sweetening plant located in Ixachi.

The group is currently finalising the terms with Pemex, with an indicative extension duration of between 2 and 3 years.

“The reason for the lengthy discussion in obtaining an extension is because of a term in the contract entitling Coastal to an inflation adjustment amounting to about US$500,000 (RM2.24 billion) per month, as the Mexican peso has strengthened about 20% against the US dollar over the years,” it said.

“Note that the Perdiz contract is denominated in Mexican Pesos,” it added.

TA Securities remarked that due to Ixachi field’s limited gas production capacity, the gas from Perdiz plant continues to be diverted to Papan plant, which has the ability to process additional products such as naphtha and liquified petroleum gas.

“Both plants are expected to ramp up processing capacity once Pemex drills new wells and increases the production capacity of Ixachi field, expected by the first half of FY2024,” it said.

As at 11.12am, the counter was down by one sen or 0.51% to RM1.97, giving it a market capitalisation of RM1.08 billion.