Tuesday, 12 August 2014

Nam Cheong

Kim Eng on 8 Aug 2014

  • 2Q14 in line. Delivery consistent, with higher revenue recognition.
  • Sustained optimism on vessel demand.
  • Maintain BUY and TP of SGD0.55, pegged to 2.2x FY15E P/BV based on Gordon Growth model.
In line
2Q14 PATMI of MYR63.3m (+55.4% YoY, -11.0% QoQ) lifted 1H14  PATMI by 75.7% YoY to MYR134.4m. This formed 54% of our FY14E and 53% of consensus forecasts. Four vessels were delivered in  2Q14 (1Q14: seven, 2Q13: four). Shipbuilding gross margins dipped 3.1ppts QoQ to 17.0% (1Q14: 20.1%, 2Q13: 17.3%) on a higher  portion of lower-margin build-to-order projects recognised. Nam  Cheong has not detected any margin compression. It guided for  15-20% gross margins in the past.

Demand from Malaysia, Indonesia and Vietnam
Nam Cheong has secured orders for 13 vessels worth USD290m (MYR930m) YTD. Orderbook is now MYR1.7b, with deliveries  through 2016. It has sold 20 out of 30 vessels ready for delivery this year and none out of the 35 which will be ready next year.  Management sees sustained demand in Malaysia for AHTS, PSVs  and workboats with more shallow-water and enhanced oil recovery  jobs. The supply of workboats is especially tight while there is  demand for more powerful DP-capable AHTS to support modern  jack-ups. PSV demand comes from new regions like the Middle  East and West Africa. Strong oil & gas activities in Indonesia and  Vietnam are also expected to support demand for more OSVs. Nam Cheong should continue to benefit from recovering OSV  demand, supported by a robust Malaysian oil & gas sector. Minor  adjustments to net profit forecasts (<1%). Maintain BUY and TP of  SGD0.55, pegged to 2.2x FY15E P/BV, based on GGM (sustainable  ROE 20%; cost of equity 9%).

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