Nam Cheong

Nam Cheong: 4Q14 results came just below street estimates. Net profit tumbled 42% y/y to RM41.1m, despite a FX gain (RM8.7m), impacted mainly by lower gross margin (-5ppt to 14.6%) from built-to-order vessels and fair value loss on derivatives (RM16.3m), but partially offset by lower finance costs (-66%).

Meanwhile, revenue improved 29% to RM523.9m, led by shipbuilding (+32%) from progressive recognition of PSVs sold, while vessel chartering segment fell 18% due to a vessel disposal.

This brought FY14 net profit to RM301.8m (+47%) and revenue to RM1.9b (+53%), 97% and 104% of street's full year estimates, driven by the delivery of 24 vessels (+20%) and expansion of its chartering fleet.

Being a specialist in the shallow water segment, the group remains less affected by the current low oil prices compared to its deepwater counterparts.

Order book remains robust at RM1.7b, comprising a mix of OSVs that are due for deliveries up to 2016.

Balance sheet remains healthy, as net gearing ratio lowered 6 ppt q/q to 42%.

Management declared a first and final DPS of 1.5¢, higher than FY13's 1¢.

Going forward, the group expects fruition of vessel purchases from its recent US$30.7m investment into PT Pelayaran Nasional Bina Buana Raya (BBR), a subsidiary of SGX-listed Marco Polo Marine. As part of the deal, BBR agreed to order five unspecified OSVs from Nam Cheong in deals worth US$85m.

The group added that it remains focused on the shallow water segment and expects to benefit from an increase in cumulative planned offshore infrastructure developments in the segment over the next few years, largely due to more oil fields coming on-stream than those being decommissioned.

At $0.325, Nam Cheong is valued at 6.0x forward P/E and 1.5x P/B.