Easing interest-rate uncertainty. NCL is currently funded by MYR460m of debt, of which MYR150m is current, which we expect will be replaced by this longer-term note. This will reduce NCL’s interest-rate uncertainties with regard to refinancing its short-term borrowings.
Lower borrowing costs amid rising rates. It is interesting to note that NCL managed to lower its interest cost by 100bps at a time when the US’ 10-year yield has risen by 120bps. Clearly, the bond market is showing confidence in NCL’s improving credit and ability to repay the loan in five years.
Consensus is upgrading estimates. Just as we expected, consensus’ FY13F/14F profit estimates have been raised by 5.3%/6.8% to MYR173.3m/200.7m following NCL’s very strong 2QFY13 results.
Bond market “meets” equity analysts. We now see a meeting of minds between the bond market and equity analysts on NCL’s fundamental strength. The lower interest rate is the clearest and biggest sign of the bond market’s consensus with the street’s positive view.
Market volatility presents clear buying opportunities. We think the market turmoil caused by fears of a potential “tapering” of the US’ stimulus is mere noise for low-P/E-high-growth companies. In essence, the tapering that will kick in if the US economy continues to recover is a strong - and positive - determinant of the prospects of the oil & gas industry. NCL’s growth story remains intact, buoyed by high oil prices and a real need for offshore exploration & production. We believe the group’s fundamentals will prevail in the medium term. Maintain BUY, with a TP of SGD0.37.
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