- Maintain BUY & SGD0.55 TP (2.2x FY15E P/BV).
- Launched propriety-designed AHTS. Signed LOIs worth USD186m for 12 vessels with options for eight more, all to be delivered from 2016, providing revenue visibility.
- Expect catalysts from further contract wins.
Nam Cheong has launched its first proprietary-designed vessel, an 80T BP diesel electric AHTS dubbed NCA80E. This is a 64.8m fuel-efficient and environmentally-friendly vessel with fuel savings of up to 20%. The greater positive is, it has signed LOIs worth USD186m for the sale and charter of 12 such vessels with five customers. There are options for eight more. The LOIs are expected to be converted into firm contracts within 90-120 days. The vessels will be delivered from 2016, from its Miri yard in Malaysia and third-party Chinese yards.
What’s Our View
We could not dissect the headline value, comprising vessel sales and charter rates, for the price of each vessel but estimate each at about USD15m. This would be slightly above the price of a 6,000 BHP AHTS. The vessels are technically under a build-to-stock (BTS) programme. But as customers confirm their orders early, margins would be lower than the 15-20% for BTS contracts. Still, these orders are a strong positive for the stock, especially in the wake of volatile oil prices. Nam Cheong has covered a large part its 2016 production output with the 20 vessels. Its subcontracting model allows it to scale up quickly and it has plenty of time to take its 2016 output to a higher level. Strong take-up by a reputable list of customers is an endorsement of its design.
The vessels would have positive impact on FY14E-16E earnings when the LOIs are executed, which are not yet in our current forecast. Maintain BUY and TP of SGD0.55, pegged to 2.2x FY15E P/BV, GGM-based.
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