Nam Cheong

DMG & Partners Research, Feb 26

NAM Cheong (NCL)'s FY2013 profit after tax and minority interests (Patmi) was RM205.6 million (S$79.5 million), including a one-off RM12.6 million tax writeback on deferred tax liabilities provisioned in FY2007-12, now no longer necessary.

Core Patmi thus surged 41 per cent y-o-y to RM193 million, beating consensus forecast.

Shipbuilding margins were 21 per cent in Q4 2013, ahead of consensus, which had predicted the margins to fall.

NCL declared 0.5 cent of ordinary dividend and a 0.5 cent special dividend, thus doubling the dividend from FY2012 and fulfilling the promise of a "happy dividend" made in Q3 2013.

Given the strong earnings growth profile, we expect dividend increases over the next few years, bringing the yield to 3.5-4.2 per cent.

FY2015 shipbuilding programme above trigger-point, expect a wave of upgrades. The company revealed that its FY2015 shipbuilding programme will comprise 35 vessels worth US$700 million, up from FY2014's 30 vessels worth US$600 million, which is also the consensus forecast.

We raise FY2014/2015 forecast estimates by 7 per cent/16 per cent accordingly, and expect a wave of street upgrades on the new information.

Based on this new forecast, we see NCL delivering 34 per cent/22 per cent earnings growth over the next two years and continuing its track record of delivering 25 per cent ROE per year.

We continue to like NCL for its strong growth, low valuations, high ROEs, strong order win momentum and orderbook, and asset-light strategy and business model.

The growing income component of the dividend yield adds another attraction to this stock. Maintain "buy" on the stock, which is one of our top picks in the offshore & marine space, with a higher S$0.48 target price (from S$0.45) based on a 10 times FY2014 forecast PE.

BUY