Nam Cheong reported a 29% YoY rise in revenue to RM523.9m but saw a 42% fall in net profit to RM41.1m in 4Q14, bringing full year net profit to RM301.8m (+47%). This was in line with our full year figure of RM301.9m but slightly lower than the street’s expectations of RM311.7m. Looking ahead, we believe that vessel owners will face stiffer competition amidst weaker demand and flat or falling day rates. In addition, newbuild OSVs continue to be delivered in 2015. This does not augur well for shipbuilders. A 1.5 S cent dividend per share has been declared for FY14, higher than the 1.0 S cent dividend in FY13 as the group saw a record year in terms of earnings due to earlier fantastic performance in 3Q14. Meanwhile, we fine-tune our estimates and lower our FY15 earnings by 5-6% such that our fair value estimate slips slightly from S$0.37 to S$0.35. Maintain HOLD.
FY14 results in line
Nam Cheong reported a 29% YoY rise in revenue to RM523.9m but saw a 42% fall in net profit to RM41.1m in 4Q14, bringing full year net profit to RM301.8m (+47%). This was in line with our full year figure of RM301.9m but slightly lower than the street’s expectations of RM311.7m. Gross profit margin was 14.6% in the quarter compared to 19.6% a year ago, mainly due to higher contributions from build-to-order vessels which generally have lower margins.
Aims to deliver 35 vessels this year
Nam Cheong sold 27 vessels out of the 30 vessels that were originally scheduled for delivery in 2014. In 2015, the group aims to deliver 35 vessels, of which 19 have been sold. For the 16 that are left unsold, management does not plan to slow down construction for now even as potential customers adopt a wait-and-see attitude.
Customers to face tougher times ahead
Looking ahead, we believe that vessel owners will face stiffer competition amidst weaker demand and flat or falling day rates. In addition, newbuild OSVs continue to be delivered in 2015. This does not augur well for shipbuilders, especially for those focused on deeper waters. Although Nam Cheong builds shallow water vessels, it is unlikely to be spared from the fallout from lower oil prices. Management believes, however, that its build-to-stock model sells “visibility” to vessel owners who prefer to buy a nearly completed vessel upon securing a charter contract.
Maintain HOLD
As at Dec 2014, Nam Cheong’s net order book stood at about RM1.3b, with deliveries up to 2016. A 1.5 S cent dividend per share has been declared for FY14, higher than the 1.0 S cent dividend in FY13 as the group saw a record year in terms of earnings due to earlier fantastic performance in 3Q14. Meanwhile, we fine-tune our estimates and lower our FY15 earnings by 5-6% such that our fair value estimate slips slightly from S$0.37 to S$0.35. Maintain HOLD.
Nam Cheong reported a 29% YoY rise in revenue to RM523.9m but saw a 42% fall in net profit to RM41.1m in 4Q14, bringing full year net profit to RM301.8m (+47%). This was in line with our full year figure of RM301.9m but slightly lower than the street’s expectations of RM311.7m. Gross profit margin was 14.6% in the quarter compared to 19.6% a year ago, mainly due to higher contributions from build-to-order vessels which generally have lower margins.
Aims to deliver 35 vessels this year
Nam Cheong sold 27 vessels out of the 30 vessels that were originally scheduled for delivery in 2014. In 2015, the group aims to deliver 35 vessels, of which 19 have been sold. For the 16 that are left unsold, management does not plan to slow down construction for now even as potential customers adopt a wait-and-see attitude.
Customers to face tougher times ahead
Looking ahead, we believe that vessel owners will face stiffer competition amidst weaker demand and flat or falling day rates. In addition, newbuild OSVs continue to be delivered in 2015. This does not augur well for shipbuilders, especially for those focused on deeper waters. Although Nam Cheong builds shallow water vessels, it is unlikely to be spared from the fallout from lower oil prices. Management believes, however, that its build-to-stock model sells “visibility” to vessel owners who prefer to buy a nearly completed vessel upon securing a charter contract.
Maintain HOLD
As at Dec 2014, Nam Cheong’s net order book stood at about RM1.3b, with deliveries up to 2016. A 1.5 S cent dividend per share has been declared for FY14, higher than the 1.0 S cent dividend in FY13 as the group saw a record year in terms of earnings due to earlier fantastic performance in 3Q14. Meanwhile, we fine-tune our estimates and lower our FY15 earnings by 5-6% such that our fair value estimate slips slightly from S$0.37 to S$0.35. Maintain HOLD.
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