Nam Cheong

Nam Cheong: Announced 1Q13 results which were below bullish estimates for the quarter, although we expect a US$110m order win announcement and robust order book to support share price. 1Q13 revenue at RM234.7m (+14% y/y, -38% q/q) while net profit at RM35.8m (+8% y/y, -27% q/q). Bottom-line was lifted by a 71% increase in other income to RM 6.3m due to gains on disposal of Property, Plant and Equipment. For the quarter, revenue was led by a 17% increase in revenue to RM228.3m for the Group’s core shipbuilding segment, while its vessel chartering segment saw a decline of 42% to RM6.4m as several vessels in the chartering fleet had to be docked for a period of time for routine survey, resulting in lower utilization of the vessels. Gross profit was -6% y/y as gross margins slid to 18.6% versus 22.6% y/y, on back of lower contribution from the vessel chartering segment to the overall gross profit. However the overall margin remained at a consistent level of 19%, in line with the margin for FY12. Going forward, group maintains an optimistic view on its prospects, citing the 2011 – 2015 capital expenditure of RM300b committed by Petronas, to fuel continued demand for Offshore Support Vessels (OSVs), especially in the shallow water region. New businesses relating to top side maintenance, hook up and commissioning and exploitation of reserves from marginal fields have also created new opportunities for its business and will continue to do so. Separately, Nam Cheong announced that it has secured contracts wins worth US$110m (~RM330.1m), comprising of a 12,000 bph AHTS sold to a new customer in Indonesia and 4 PSVs sold to an existing customer based on Asia. The contracts are expected to contribute positively to the group’s FY13-14 earnings. We note that the latest contracts brings group’s total order book to an ~RM1.7b, which stretches earnings visibility over the next 2 years and on a year-to-date basis, the group has secured RM1.1b worth of orders, under pinning the strong order momentum. At current price, Nam Cheong trades at a compelling forward 7.2x P/E versus industry average of 11.5x.