Monday, March 18, 2013

Nam Cheong Limited - A Buy

Nam Cheong Limited (NCL) is the largest Offshore Support Vessels (OSVs) shipbuilders in Malaysia. It is also one the largest regional players. Established four decades ago, NCL is headquartered in Kuala Lampur, Malaysia. Its prime focus is on building environment friendly & technologically advanced OSVs which are used in the exploration & production of offshore oil & gas.

Currently, NCL has 37 vessels in October 2012, under its shipbuilding program which is due for completion by 2013.

NCL’s global presence spans across Malaysia, the U.S., the Middle East and South-East Asian regions among others.

Financial Results 

NCL witnessed a whopping increase of 45% YoY to MYR 877Million in net sales in 4Q2012 primarily driven by significant growth in the shipbuilding business. Gross profit increased 56% YoY to MYR 164Million. Operating margin took a beating of 90bps YoY to 16.4% in 4Q2012 from 17.3% in 4Q2011. Net profit climbed up 47% YoY to MYR 137Million in 4Q2012.

Operational Challenges

Operating margin shrank due to declined margins in NCL’s vessel charting business. However, measures have been taken to redeploy vessels which completed their contracts. The primary reason for the considerable increase in net revenues could be assigned to the increase of 49% YoY to MYR 839Million in 4Q2012 in the shipbuilding business. Out of the 19 vessels which were deployed for 2013, the company already secured orders for 13 vessels.

Dividend Payout

Dividend paid for the reported quarter is 0.5 Singapore cents which accounts for 19.2% payout ratio of net profit after tax. The company paid a dividend of 0.2 Singapore cents in the year-ago period (4Q2011). There is no dividend forecast for the current year FY13.

Looking Forward 

Nam Cheong sits on an order book of MYR 1.3Billion which includes a big-ticket order of USD 130Million (MYR 405.3Million) from Bumi Armada. It needs to deliver four units of Multi-Purpose Supply Vessels. Revenue estimates for the current year is at an average of MYR 1.3Billion and for FY2014 it is estimated to be around MYR 1.5Billion against the last year revenue of MYR 877Million. The estimated EPS for FY2013 & FY2014 are MYR 8.7 per share and MYR 9.69 per share, respectively. NCL expects an uptick in vessels to 19 vessels in 2013 & 25 vessels in 2014, versus 13 vessels in 2012.

Stock Information

Nam Cheong Limited (“NCL”) was listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 27 May 2011. Nam Cheong limited (SGX:NCL) share price closed at S$0.25 a share. The average volume of shares traded is 13.3Million at the Singapore Stock Exchange.

Reasons to Buy

With increasing net sales and net profit, NCL appears to be a safe haven. The management has successfully utilized half of its S$160Million fresh capital which was raised through MTN issuance of shares in 2013 improving the gearing ratio to 0.40x by the end of FY2012 comparable 0.63x in FY2011. NCL has an expanding balance sheet with MYR 216.3Million in total assets at the end of FY2012 compared to MYR 26.7Million in FY2011. Furthermore, the Malaysian offshore industry looks robust and the demand for small AHTS vessels & PSVs seems to be gaining grounds as obsolete models are replaced by technologically advanced & greener vessels.  It is no wonder that various analyst have been giving BUY calls on this stock.

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