2Q14 results within our expectations
Nam Cheong Limited reported a good set of 2Q14 results, with revenue jumping 37.6% YoY to MYR378.8m and PATMI soaring 55.4% to MYR63.3m. After adjusting for one-off gains amounting to MYR6.5m, results still came in within our expectations. For 1H14, revenue and PATMI rose 54.1% and 75.7% to MYR786.1m and MYR134.4m, respectively. On a segmental basis, Nam Cheong‟s shipbuilding revenue and gross profit grew 37.2% and 34.7% YoY in 2Q14, respectively. Vessel chartering revenue increased 44.3% but gross profit fell 26.9% due to the end of a charter contract and the chartering-in costs of third party vessels.
New product lines to spur further demand ahead
Nam Cheong has secured order wins for 13 vessels worth approximately US$290m (~MYR931m) YTD, and its order book value stood at ~MYR1.7b (of which MYR1.4b remains unrecognised), as at 1 Jul 2014. Looking ahead, Nam Cheong remains upbeat on the oil and gas industry. It plans to launch new vessels of its own design on 17 Oct this year which are aimed to be fuel efficient. This will place it at the forefront to secure more vessel sales given the ongoing OSV replacement cycle. With more tenders coming out of Malaysia recently, we believe Nam Cheong is on track to finish selling the remaining 10 unsold vessels under its 2014 shipbuilding programme by the end of the year.
Maintain BUY
We raise our FY14 and FY15 PATMI projections marginally by 0.9% and 1.0%, respectively, to take into account higher expected share of profits of jointly controlled entities ahead. Given Nam Cheong‟s proven execution capabilities, robust earnings outlook and the fact that it has been one of the standout performers operationally within the oil and gas sector in recent times, we assign a higher target PER peg of 11x (previously 9.5x) to our blended FY14/15F EPS. This still represents a 17.5% discount to its closest competitor Coastal Contracts‟ valuation. Our fair value estimate is thus bumped up from S$0.445 to S$0.55. Maintain BUY.
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