Last week, Nam Cheong announced that it sold two vessels worth about US$58m to two repeat customers; we estimate that there are another 15 vessels left unsold for 2015 delivery. Despite efforts to diversify revenue, the group is still very much dependent on Asia, and OSV owners in this region have also been impacted by the recent oil price rout, including cabotage-protected markets like Malaysia and Indonesia. Middle East, another key market, also saw a surge in idle tonnage recently. 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. With O&M peers trading at lower valuations, we decrease our P/E from 7x to 6x FY15 EPS, such that our fair value estimate eases slightly from S$0.35 to S$0.30. Maintain HOLD; we would be buyers at around S$0.275.
First vessel sales for the year
Last week, Nam Cheong announced that it sold two vessels worth about US$58m to two repeat customers. A 200-pax accommodation work vessel was sold to a subsidiary of Marco Polo Marine for delivery in the next quarter, and a 12,000 bhp AHTS (delivery 2016) was sold to Topaz Energy and Marine, which is based in Dubai. This brings its cumulative order book to RM1.7b (~S$637.8m, based on S$1 = RM2.665).
Sold 20 of 35 vessels for 2015 delivery
With the recent sales, we estimate that the group has sold 20 of its 35 vessels that were slated for 2015 delivery, leaving another 15 unsold. Management had indicated that there were no plans to slow down construction even as potential customers adopt a wait-and-see attitude; we think that the group may be willing to offer discounts to customers under the current muted environment.
Slowdown across the board
Despite efforts to diversify revenue, the group is still very much dependent on Asia, and OSV owners in this region have also been impacted by the recent oil price rout, including cabotage-protected markets like Malaysia and Indonesia. Middle East, another key market, saw a surge in idle tonnage recently as the challenging OSV market is now becoming more evident in the Middle East. Asia-based customers (e.g. Singapore, Malaysia, Indonesia, Vietnam) accounted for 78% of total revenue in FY14, with Middle East at 16%, Africa at 5% and Europe at less than 1%. This is similar to FY13, though Middle East accounted for a bigger portion then at 22%, with less coming from Africa.
Wait it out for now
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. With O&M peers trading at lower valuations, we decrease our P/E from 7x to 6x FY15 EPS, such that our fair value estimate eases slightly from S$0.35 to S$0.30. Maintain HOLD; we would be buyers at around S$0.275.
Last week, Nam Cheong announced that it sold two vessels worth about US$58m to two repeat customers. A 200-pax accommodation work vessel was sold to a subsidiary of Marco Polo Marine for delivery in the next quarter, and a 12,000 bhp AHTS (delivery 2016) was sold to Topaz Energy and Marine, which is based in Dubai. This brings its cumulative order book to RM1.7b (~S$637.8m, based on S$1 = RM2.665).
Sold 20 of 35 vessels for 2015 delivery
With the recent sales, we estimate that the group has sold 20 of its 35 vessels that were slated for 2015 delivery, leaving another 15 unsold. Management had indicated that there were no plans to slow down construction even as potential customers adopt a wait-and-see attitude; we think that the group may be willing to offer discounts to customers under the current muted environment.
Slowdown across the board
Despite efforts to diversify revenue, the group is still very much dependent on Asia, and OSV owners in this region have also been impacted by the recent oil price rout, including cabotage-protected markets like Malaysia and Indonesia. Middle East, another key market, saw a surge in idle tonnage recently as the challenging OSV market is now becoming more evident in the Middle East. Asia-based customers (e.g. Singapore, Malaysia, Indonesia, Vietnam) accounted for 78% of total revenue in FY14, with Middle East at 16%, Africa at 5% and Europe at less than 1%. This is similar to FY13, though Middle East accounted for a bigger portion then at 22%, with less coming from Africa.
Wait it out for now
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. With O&M peers trading at lower valuations, we decrease our P/E from 7x to 6x FY15 EPS, such that our fair value estimate eases slightly from S$0.35 to S$0.30. Maintain HOLD; we would be buyers at around S$0.275.
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