Nam Cheong

UOBKayhian on 12 Nov 2014

FY14F PE (x): 7.1
FY15F PE (x): 6.5

A solid 3Q14 on the back of better-than-expected gross margins. 3Q14 and 9M14 net
profit of Rm126m and RM260m blew away consensus estimates with 9M14 net profit
accounting for nearly 100% of our full-year estimate. 3Q14 gross margin for the
shipbuilding segment came in stronger-than-expected at 24% (flat yoy, +6.3ppt qoq) as
more vessels were sold closer to completion. Overall gross margin in 3Q14 dipped by
1.6ppt to 24% due to a decline in chartering margins (-44ppt yoy) as one of the vessel
charter contract ended and the vessel was subsequently sold at a slight loss.
On the right track; upgrade to BUY and target price of S$0.50. We upgrade Nam
Cheong from HOLD to BUY as we now it is well positioned to weather a slowdown in
OSV demand with a diversified client base, new fuel-efficient vessel designs and
penetration into the cabotage-protected Indonesian market. The stock has retraced
22% from its peak since we our last downgrade and presents good opportunity for
clients to re-enter. Our valuation is pegged at 8.0x 2015F PE, a 15% premium to peers’
long-term mean of 7.0x.