Tuesday 18 November 2014

Nam Cheong

OCBC on 11 Nov 2014

Nam Cheong reported a strong set of results this morning, with revenue rising 81% YoY to RM618.6m and net profit more than doubling to RM126.3m in 3Q14. This brought 9M14 net profit to RM260.7m, beating ours and the street’s expectations. The group has secured order wins for 25 vessels worth approximately US$505m (~MYR1622m) YTD, and its net order book stood at RM1.4b as at 9M14. With the stronger-than-expected results, we raise our FY14 and FY15 PATMI projections by 17% and 6%, but with the de-rating of the broader sector, we lower our P/E from 11x to 9.5x blended FY14/15F earnings, such that our fair value estimate eases slightly from S$0.55 to S$0.53. Maintain BUY.

Strong 3Q14 results beats expectations
Nam Cheong reported a strong set of results this morning, with revenue rising 81% YoY to RM618.6m and net profit more than doubling to RM126.3m in 3Q14. This brought 9M14 net profit to RM260.7m, beating ours and the street’s expectations. On a segmental basis, Nam Cheong’s shipbuilding revenue and gross profit grew 86.1% and 96.6% YoY in 3Q14, respectively. Vessel chartering revenue increased 9.2% but gross profit fell 60.9%. Shipbuilding revenue was stronger due to the increase in order win in 3Q14 of 16 vessels vs. seven vessels in 3Q13. There was also the delivery of shorter lead-time vessels in 3Q14.

Record year in order wins
Nam Cheong has secured order wins for 25 vessels worth approximately US$505m (~MYR1622m) YTD, and its net order book stood at RM1.4b as at 9M14. The group is looking to sell three more vessels by the end of this year, and if successful, would bring total order wins to 28 for 2014 vs. 24 last year. Looking ahead, Nam Cheong remains confident on its prospects as it operates in the relatively resilient shallow water segment which it deems as “recession-proof”. Its newly launched AHTS vessel design, which has a focus on fuel efficiency, has also been well-received from the market. For 2015, Nam Cheong is aiming to deliver 35 vessels, of which 14 have been sold.

Maintain BUY
With the stronger-than-expected results, we raise our FY14 and FY15 PATMI projections by 17% and 6%, but with the de-rating of the broader sector, we lower our P/E from 11x to 9.5x blended FY14/15F earnings, such that our fair value estimate eases slightly from S$0.55 to S$0.53. As FY14 is likely to be Nam Cheong’s strongest year yet, we forecast a higher dividend of 1.3 S cents for FY14F vs. 1.0 S cent last year (similar payout ratio), as we believe management is keen to reward shareholders. Maintain BUY.

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