Monday, 19 January 2015

Nam Cheong

UOBKayhian on 19 Jan 2015

FY14F PE (x): 5.9
FY15F PE (x): 6.4
Margins to ease amidst signs of OSV demand slowdown. Management noted that its
customers are taking a longer timeframe in assessing their OSV requirements and
delaying/lowering their capex commitments due to the recent oil price collapse. Gross
margins are expected to normalise from the current levels low 20% to mid-teens for next
few quarters. Nam Cheong’s recent vessel sales (1 AHTS and 1PSV) were done at a
slight ~5% discount to what it managed to achieve during the peak of oil prices
Downgrade to HOLD with a target price of S$0.36 (from S$0.50). Our target price is
pegged at 7x (long-term sector mean) 2015F PE (8x previously). The sudden oil price
collapse has resulted in oil majors deffering and cutting down on their capex budgets
which will have a direct impact on Nam Cheong’s BTS business model. The impact is
however cushioned by Nam Cheong’s proven capability of delivering quality vessels and
a growing client base. Downgrade to HOLD with an entry price of S$0.27.

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