- 3Q14 PATMI beat on stronger vessel sales and margins. 9M14 already at 104% of our FY14E forecast. Raise FY14E-16E EPS by 4-23%.
- Remains optimistic on new orders. Catalyst from unveiling of 2016 shipbuilding programme.
- Maintain BUY. GGM TP raised to SGD0.57 from SGD0.55, still pegged to 2.2x FY15E P/BV.
3Q14 PATMI of MYR126.3m (+115.2% YoY, +99.5% QoQ) beat consensus and our expectations. The record performance was attributed to strong new orders for 16 vessels vs seven in 3Q13 and shipbuilding gross margins of 24.0% (2Q14: 17.0%, 3Q13: 22.8%). This lifted 9M14 PATMI to 104% of our FY14E forecast. Nam Cheong guides for long-term gross margins of 15-20%.
Relentless growth
Despite a shaky outlook for the oil and gas sector, Nam Cheong has been steadily selling its vessels. 2014 newbuilds are almost sold out while 40% of its 35 vessels for 2015 delivery have been sold. Order book is MYR1.9b, with MYR1.4b of unrecognised revenue.
Nam Cheong sees sustained demand from brownfield enhanced oil recoveries. It also believes risks are lower for its shallow-water vessels. It recently secured LOIs worth USD186m for the sale and charter of 12 vessels. These come with eight options, which we expect to firm into orders. We forecast 38 vessels for 2016 delivery, including build-to-order contracts. A larger 2016 shipbuilding programme, to be unveiled in early 2015, could potentially catalyse the stock and our earnings.
We raise FY14E EPS by 23% and FY15E-16E by 4-5% on the strong set of results. Reiterate BUY with TP lifted to SGD0.57 from SGD0.55, still based on GGM (2.2x FY15E P/BV, sustainable ROE 20%, cost of equity 9%).
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