Share Price S$0.29
Target Price S$0.36
Nam Cheong is a leading Malaysia-based offshore marine group specialising in the construction of offshore support vessels (OSV). Core businesses are: a) construction of OSVs used in the exploration, development, production and decommissioning phases of the oilfield lifecycle, and b) chartering of OSVs.
• Larger orderbook. Ytd’s record vessel sales of RM1,338m (20 vessels) have surpassed 2012’s total sales of RM1,314m (21 vessels). Nam Cheong’s orderbook currently stands at gross RM1.7b (net RM1.4b), up from RM1.4b (net RM1.2b) a quarter ago. Current orderbook, comprising 25 vessels (4, 16 and 5 to be delivered in 4Q13, 2014 and 2015 respectively), provides strong earnings visibility for the next three years. In 9M13, Nam Cheong delivered 14 vessels vs 9 vessels in 9M12.
• The 2014 shipbuilding programme is well-balanced with 28 vessel deliveries (2013: 19) comprising 11 anchor handling tug supply (AHTS) and emergency response and rescue vessels (ERRV), 12 PSVs, and 5 work accommodation barges. Of these, 5, 8 and 3 respectively (a total of 16 vessels or 57% of 2014 shipbuilding programme) have already been sold.
• Vessel sales remain healthy. All of the vessels due to be delivered in 2013 have been sold, except for a 5,000-dwt PSV. As for the 28 vessels to be delivered in 2014, 16 (vs 12 a quarter ago) of them have already been sold. While Nam Cheong has not unveiled its shipbuilding programme for 2015, we expect it to be larger than 2014’s.
• Maintain BUY and our target price of S$0.36, which is based on 9.7x 2014F PE. Our target PE is 1.4SD above peers’ long-term PE mean of 7.1x, which we think is justified given Nam Cheong’s dominant 50-75% market share in Malaysia’s high barriers-to-entry OSV shipbuilding market. We see further upside to our earnings forecasts if Nam Cheong clinches built-to-order vessels. As Nam Cheong builds many of its vessels in China, attractive payment terms offered by shipyards remain a key factor.
Publish date: 28/11/13