Coastal Contracts has been upgraded to a BUY from NEUTRAL by RHB Investment Bank Bhd (RHB Research), with a revised target price of RM1.85, representing a 20% upside from its current price of RM1.54. The positive shift in recommendation comes despite a slight reduction in its ESG (Environmental, Social, Governance) score from 2.7 to 2.6, reflecting certain sustainability gaps.

RHB Research noted that while Coastal Contracts has demonstrated its commitment to sustainability through initiatives such as investments in natural gas projects and a long-term roadmap to achieve net-zero emissions by 2050, the company lags behind peers in emissions reporting. It has not yet disclosed its Scope 1, 2, and 3 emissions, which is a key area for improvement to enhance its ESG profile.

The group has also been divesting from offshore support vessels (OSVs) while exploring opportunities within the renewable energy (RE) sector.

Despite these challenges, analysts have found value in the stock's current price, especially with the stock trading at 4.6x FY25F P/E, below the 5-year average. Coastal Contracts' upcoming discussions regarding the extension of its jack-up gas compression service unit (JUGCSU) contract and increased gas production at the Ixachi field are expected to bolster its recurring income and maintain its stock's long-term appeal.

In addition to these positive developments, RHB Research sees potential catalysts that could drive the stock's performance, with the market set to benefit from the company's ongoing transformation into a more sustainable energy provider.