Nam Cheong

DBS GROUP RESEARCH, Jan 28

NAM Cheong started off 2014 with sales of five vessels worth US$70 million to a repeat customer, Sentinel Marine, which in an emerging offshore support vessel (OSV) player based in Aberdeen. This comes on the back of sales of four vessels in end-December 2013 worth US$66 million.

With these sales, Nam Cheong has already sold 17 of the 25 vessels in its 2014 built-to-stock work programme. The 2015 built-to-stock programme is likely to be announced in the near term but, for now, we have assumed a similar size to the 2014 programme, hence upside potential remains.

Our forecasts for Nam Cheong don't include any future build-to-order wins. Hence, this round of contract wins boosts our revenue and earnings estimates for FY2014/2015.

Combined with some housekeeping adjustments for translation effects of currency exchange rates, our earnings estimates for FY2014/2015 is revised up by about 5 per cent. The weaker MYR-USD exchange rate can also potentially have a beneficial impact on shipbuilding margins, which we haven't taken into account.

Expect healthy net profit CAGR of 26 per cent over FY2012-2015; maintain "buy" with a slightly higher TP of $0.43, pegged to 10x FY2014 earnings. Catalysts expected from strong quarterly earnings delivery and further order wins.

BUY