Nam Cheong

UOBKayhian on 12 Mar 2014

FY14F PE (x): 7.9
FY15F PE (x): 6.4

Time-tested BTS model fine-tuned based on deeper client relationships. Most of the
client queries were centered on Nam Cheong’s robustness of its BTS model and if the
margins are sustainable going forward. Management noted that over the last six years it
has been able to sell all its vessels six months ahead of completion (on average) due to
its closer and long-standing relationship with its clients. Typically, two-third of vessel
orders comes from repeat customers highlighting strong execution capabilities and
closer customer relationships. Nam Cheong has also sold 50% of vessels under its
bigger 2014 ship-building sold before the start of year compared to 43% in 2012.
Maintain BUY with a target price of S$0.41, pegged at 8.0x 2015F PE. Our target PE is
at a 15% premium to peers’ long-term mean of 7.0x, which we think is justified given
Nam Cheong’s dominant market share in the high-barriers-to-entry Malaysian OSV
shipbuilding market.