Nam Cheong

DMG & Partners on 11 Oct 2012

NAM Cheong announced yesterday that it has sold a 3,000 dead-weight tonne (dwt) platform supply vessel (PSV) and a 5,000 dwt PSV for a combined US$52.1 million to be delivered within six months. These are among the highest-value vessels Nam Cheong is currently building.

In August, Nam Cheong sold its first vessel, a 3,000dwt PSV, to the West African market, opening its foray into this new region. The sale of these two PSVs to two new customers is a strongly positive sign of acceptance among the vessel owners in Africa. We expect these two vessels to contribute at least RM20 million (S$8 million) to the bottom line, using conservative assumptions. After tweaking for various vessel recognition stages, our model now shows that while Q3 FY12 forecast results would be below Q3 FY11's record RM46.8 million, the full nine-month FY12 forecast bottom line should come out to the RM85 million to RM90 million region. Adding this RM20 million to the score, Nam Cheong today is already sitting on about RM105 million to RM110 million in profits, well exceeding FY11's RM93.2 million .

Maintain "buy" with unchanged TP $0.290. Nam Cheong has run up a good 23 per cent since our initiation, but we still see deep value in this company. Our TP is pegged to merely 8.5x FY12/13 forecast blended EPS, which is far from demanding for a company with a two-year projected EPS compound annual growth rate of 38 per cent.

BUY