Nam Cheong

Nam Cheong: DMG note that Nam Cheong is set to report its 'strongest-ever' results next Monday evening. By house estimates, it will report RM50.8m for the qtr, trumping with ease 4QFY12’s RM26.4m. House raising FY12F estimate by 4.5% to RM138m, implying 48% growth over FY12. The share price has retraced 11% since its peak last mth, and is now at the placement price of $0.255. Vew this as a very attractive entry point at 7.8x FY13F EPS. Grp has sold 9 vessels in the qtr out of 21 for the full year. 4QFY12 was a record in many ways, with Nam Cheong closing almost half its full-yr sales (which were themselves a new high) in one quarter alone. Remember that Nam Cheong recognises all rev on work completed up to the point of sale immediately, thereafter following percentage-of-completion, and this sets Nam Cheong up for the strongest-ever financial performance. House add that previous margin assumption too conservative. Raise FY12F EPS by 4.5%. 3QFY12 saw shipbuilding gross margins at 25%, a sharp rise from the 15%-18% of the first two qtrs. These high-margin works will continue in 4Q, and thus raise full-year building margin expectation to 18.4%, implying 18% for the quarter under preview. This increases FY12F bottom line to RM138m from RM132m. House continue to see strong growth in Nam Cheong over the next three years, with ROE being maintained between 20% and 25%. Forecast net profit growth of 25%/14% over FY13F/FY14F, and these estimates have not included the potential increase in the shipbuilding programme that is likely to be announced next Monday. Conclude that at the current price, which incidentally equals the recent placement price, Nam Cheong is trading at only 7.8x/6.9x FY13F/FY14F EPS. This is attractive for the largest OSV builder this side of the world, capturing almost the entire Malaysian market, and being a major beneficiary of Petronas’ surging capital expenditure budget. Continue to value Nam Cheong at 10x FY13F EPS for a TP of SGD0.33.