TP of S$0.24
Nam Cheong announced that it has been awarded a Letter of Intent (LOI) to build 4 units of Multi-Purpose Platform Supply Vessels (MPSVs) by Bumi Armada, with an option to build an additional four units. The contract, when finalised, will be worth about US$130m, which translates to about US$33m per vessel, which we reckon is fair. All four ABS Class MPSVs will be 88.8m long, of 4,500dwt size and with DP2 capability. The vessels will be built to support offshore deepwater activities with multi-purpose functions of transporting cargo as well as to standby for rescue work. The vessels are scheduled for delivery between 2Q-2014 and 2Q-2015 and will be built as part of Nam Cheong’s built-to-order series in one of its partner yards in China, upon final execution of the LOI.
This LOI worth US$130m, when finalised, will be one of the most significant contract wins in Nam Cheong’s corporate history, and not only indicates the robust underlying fundamentals in the offshore oil & gas sector, but also
demonstrates increasing confidence in Nam Cheong’s capabilities as a shipbuilder. Having built up a strong track record in AHTS vessels over the years, Nam Cheong is now gearing up to build more PSVs for the Asian waters, which will drive revenue growth in the near to medium term.
With this contract win, management estimates current orderbook of around RM874m, surpassing last year’s level comfortably. Though this is a big order win, we keep our FY12/13 earnings estimates unchanged as the LOI, when finalised, will be a build-to-order sale and revenues will be progressively recognised over a longer period with final delivery scheduled only in FY14/15. Notwithstanding the current macro uncertainties and worries regarding the fate of the Eurozone, this latest order win serves to support our positive view on the sector and the stock, and we maintain our BUY rating with a TP of S$0.24, pegged to 8x blended FY12/13 earnings.
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