Nam Cheong

By Chia Jiunyang 
Nam Cheong Limited reported a strong pick-up in 2Q13 performance, with revenue and net profit climbing 84% and 81% YoY to RM275m and RM41m respectively. The surge was mainly driven by higher contribution from the shipbuilding segment. As a result, net profit attributable to shareholders jumped 81% YoY to RM41m. For 1H13, net profit was RM76m, forming 50% and 46% of ours and the street?s FY13F estimates. The outlook for Nam Cheong is positive, and the group is likely to benefit from an uptick in Malaysia?s offshore oil & gas activities over the medium term horizon. Maintain BUY with an unchanged S$0.35 FV.

2Q13 results within expectations
Nam Cheong Limited reported a strong pick-up in 2Q13 performance, with revenue and net profit climbing 84% and 81% YoY to RM275m and RM41m respectively. The surge was mainly driven by higher contribution from the shipbuilding segment. Other income remained stable at RM3m (-3% YoY), while finance costs increased 44% to RM1.6m, mainly due to interest expense and amortization of the MTN issuance cost. As a result, net profit attributable to shareholders jumped 81% YoY to RM41m. For 1H13, net profit was RM76m, forming 50% and 46% of ours and the street?s FY13F estimates. 

Shipbuilding profit doubled
Nam Cheong?s 2Q shipbuilding revenue and gross profit surged to RM259m (+87% YoY) and RM45m (+110%) on the back of progressive recognition of the 7 PSVs sold. Shipbuilding gross profit margin remained stable at 17%. As of 13 Aug 2013, the group still has an order-book of 22 vessels with RM1.2b of revenue unrecognized. For its shipbuilding programme, vessels for delivery in 2013 are all sold, except for one PSV. For vessels due for delivery in 2014, 16 out of 28 vessels are unsold. Separately, 2Q chartering revenue and gross profit grew to RM16m (+45% YoY) and RM9m (+9%) respectively. It recently added an accommodation vessel to its charter fleet and we understand that the new vessel is already out on a long-term bareboat charter. 

Positive outlook
Outlook for Nam Cheong is positive. Key demand drivers such as global rig counts and utilization are showing strength over the past one year. Within Malaysia, Nam Cheong, being the country?s largest OSV builder, is well-positioned to benefit from an uptick in offshore oil & gas activities. Its close ties with Petronas-licensed companies also give it a competitive edge in securing contracts. We continue to like Nam Cheong for its growth profile and keep our  BUY  rating and S$0.35 FV unchanged.      ...last: $0.285...

Nam Cheong (S$0.285)

Awakening within the Channel Analyst: Yeo Kee Yan+65 6398 7955

Recommendation: Buy TP: $0.36 keeyan@dbsvickers.com

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revenue & earnings forecast2QFY13 results says group on-track to meet FY

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shows stock has upside to $0.355

News (2QFY13 results release) ?2Q net profit of RM41.1mil

(up 83% y-o-y) was slightly higher than expectation driven

by higher vessel sales. 1HFY13 net profit of RM76.9m now

accounts for close to 47% of full year earnings estimate,

where 2H is usually seasonally stronger. Meanwhile, overall

gross margin held steady at 19.5%. Nam Cheong has

already sold 16 vessels worth a total of US$311m in FY13,

and is well on track to beat the record of 21 vessels sold in

FY12. Balance sheet remains relatively healthy with net

gearing reduced to 0.31x from 0.38x at end-FY12, which

allows the Group headroom to continue and expand its

new building programme.

Fundamental ? 2QFY13 results release points to the group

on-track to meet DBSV Research?s FY revenue and earnings

forecast. Our current TP of $0.36 is pegged at 10x blended

FY13-FY14. Our analyst is likely to maintain the BUY

recommendation with current earnings forecast & TP under

review.

Technical ? The stock?s major rising trend channel is intact

that currently places major support at $0.27 and major

resistance at $0.35. Current near-term support is at 0.28-

0.285. Fibonacci projection shows the stock has eventual

upside potential to $0.355, which is in-line with our current

fundamental TP.

With the rising trend intact and the latest earnings showing

the group on track to meet FY13 forecast, expect the stock

to trend higher to the major rising trend channel return

(resistance) line currently at $0.35.

Action ? Buy at $0.285 near-term support. Price action

shows stock has upside potential to $0.355.Buy at near-term support $0.28-0.285, price action

Nam Cheong (Daily)

Source: DBS Research