Nam Cheong Ltd,
Price Target : 12-Month S$ 0.36
•2Q13 earnings jumped 83% to RM41m - slightly above
•Strong vessel sales momentum YTD and looks set to exceed last year’s record sales numbers
•Expect EPS CAGR of 17% over FY12-14, upside potential remains if vessel sales are faster than expected
•Maintain BUY with unchanged TP of S$0.36
Another strong quarter. 2Q net profit of RM41.1m (+ 83% y-o-y) was slightly higher than expectations, driven by higher vessel sales during the quarter, which boosted revenue by 84% to RM275.4m. Shipbuilding margins held steady on a sequential basis at 17.3%. Chartering revenue improved as the 12,000bhp AHTS vessel started to contribute. However, chartering margins have normalized to c.55%, as more contracts are now on time-charter basis and there is limited uplift from financing arrangements.
Robust order momentum YTD in FY13. Nam Cheong has already sold 16 vessels worth a total of US$311m so far this year, and is well on track to beat the record of 21 vessels sold in FY12. Balance sheet remains relatively healthy with net gearing declining to 0.31x from 0.38x at end-FY12, which provides the group with headroom to continue and expand its new building programme. The group remains well on track to deliver on its built-to-stock programmes of 19 vessels in FY13 (18 sold already) and 25 vessels in FY14 (9 sold already), and this will underpin FY12-14 EPS CAGR of 17%.
Improved revenue visibility. Nam Cheong’s net orderbook now stands at about RM1.2bn, which includes, apart from the built-to-stock series, 4 ERRVs for deployment in the North Sea and 4 MPSVs for Bumi Armada on a built-to-order basis. Industry capex momentum continues to be strong, especially in Malaysia, and Nam Cheong expects to benefit strongly from the replacement demand for small size AHTS and mid size PSV segments as more long term charters come up for renewal.
2H should be stronger. As we fine tune our model to adjust for the stronger US$, we revise up our net profit estimates for FY13/14F by 3-5% but our TP – pegged to 10x blended FY13/14F earnings – remains unchanged at S$0.36, due to the concurrent depreciation of the MYR against the SGD. Maintain BUY. There could be further upside to earnings if vessel sales momentum is stronger than expected in 2H13.
Publish date: 14/08/13