Nam Cheong A Fast-Moving Stock

Nam Cheong has sold a AHTS and PSV for USD43.1m, which maintains its orderbook at MYR1.4bn. The 2014 build-to-stock programme is now 67% sold, with only 10 units left. Petronas’ recent announcement on lower charter rates will actually benefit Nam Cheong, as vessel owners hold back on build-to-order contracts. The firm is also successfully developing its global customer base. Maintain BUY with a SGD0.48 TP. 

Double sale. Nam Cheong has sold two vessels - a platform supply vessel (PSV) and an anchor handling tug supply vessel (AHTS) - for a combined sum of USD43.1m. The AHTS vessel went to a new customer, Kayfour Development Corporation SB in Malaysia while the PSV was sold to a repeat customer in West Africa, E.A. Temile and Sons Development Company of Nigeria Limited. Its orderbook is maintained at a strong MYR1.4bn. We expect both vessels to be delivered in the next three months, which will boost 1Q/2Q14 figures.

Vessel stock moving fast. NCL now only has 10 vessels left unsold in its 2014 delivery programme, with two-thirds of current-year stock already
sold in the first quarter. A fifth (eight out of 35 vessels) of the 2015 vessels have already been sold as well.

Petronas announcement spells good news; fears are misplaced. In early March, Petronas warned that OSV charter rates are falling in Malaysia, which prompted fears of peaking rates in the country and caused Nam Cheong’s shares to retreat by 10%. We think that the fears are misplaced – vessel owners will likely hold back on build-to-order contracts, but should they secure charters, they will then turn to build-to-stock players like Nam Cheong for ready supply. Moreover, the company is actively developing new markets and new customers (as evident in its latest sale) and should be able to clear its entire stock of vessels.

Maintain BUY with a SGD0.48 TP. We continue to like Nam Cheong as the largest shallow-water offshore supply vessel (OSV) builder in the world, which has a growing presence in global OSV markets. The successful sale of all its stock vessels will allow for 35/21% bottomline growth over FY14/15F. Its stock is inexpensive, at a 7x P/E. Maintain BUY with a SGD0.48 TP, based on a 10x FY14F P/E.