Nam Cheong Ltd:
STI : 3,186.37
Price Target: 12-Month S$0.42 (Prev S$ 0.36)
Still at full steam;
•Potential early beneficiary of renewed strength in offshore support vessel (OSV) market
•Earnings execution above estimates YTD in FY13; FY13/14 EPS estimates revised up by 6-8%
•Expecting healthy 2-year earnings CAGR of 22%; further upside if FY15 built-to-stock programme bigger than expected
•Maintain BUY with TP revised up to S$0.42, as we roll over valuations to FY14 earnings
Robust earnings execution YTD. On the back of improving industry dynamics, Nam Cheong has consistently exceeded our expectations on both order wins and earnings YTD in FY13. Its 3Q13 net profit came in at record levels of RM59.2m (up 88% y-o-y and 44% q-o-q) as top line more than doubled y-o-y to RM341m. Shipbuilding revenues were boosted by the sale of seven vessels during the quarter, while chartering segment saw additional contribution from two vessels. Shipbuilding gross margin came in better than expected at 23%, boosted by higher margin PSV sales.
Vessel sales momentum upbeat. YTD in FY13, the Group has already sold 20 vessels worth a total of US$432m, ahead of FY12 vessel sales (21 vessels worth US$423m). We estimate that 18 of the 19 vessels scheduled to be completed in FY13 and about 13 out of the 25 vessels scheduled to be completed in FY14 have been sold already. The Group’s FY15 new building programme has not been disclosed yet but could likely be bigger than FY14. Apart from the built-to-stock series, Nam Cheong is also building four ERRVs to be deployed in the North Sea and four MPSVs for Bumi Armada on a built-to-order basis. Its net orderbook is worth RM$1.4bn now.
Potential beneficiary of an upswing in the OSV cycle. As we factor in better margins amid potentially recovering asset values, and include higher contributions from the chartering segment, we revise up our FY13/14 net profit estimates by 6-8%. Maintain BUY with higher TP of S$0.42, pegged to 10x FY14 earnings. Expect catalysts from strong earnings performance and upside potential from bigger FY15 newbuilding programme, when unveiled next year. Nam Cheong remains one of our top picks in the O&M sector.
Publish date: 29/11/13