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Results Review, 12 November 2014
Nam Cheong (NCL SP)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD667m
Target Price:
Price:
SGD0.61
SGD0.41
Macro
Risks
Citius, Altius, Fortius
Growth
Value


2

.
2
0
.
3
0.51
180
0.46
162
0.41
144
0
0
.
3
0
0
Nam Cheong delivered such a stellar 3Q14 PATMI of MYR126m that its .
0
9M14 PATMI has met 93%/99% of our/street FY14 forecasts, as 0
shipbuilding margins surged to 24% from the 17-20% range. Maintain 0
BUY. We raise our TP to SGD0.61 from SGD0.58 (49% upside) as we roll
over to a higher weight on FY15F earnings, offset by a lower 9x (from
10x) multiple as a concession to market sentiment. We also raise FY1416 forecasts by 11-13% as we increase margin assumptions.
0.36
126

0.31
108
0.26
70
90
Nam Cheong (NCL SP)
Price Close
Relative to Straits Times Index (RHS)
60

50
40
30
20

Sep-14
Jul-14
May-14
Mar-14
Jan-14
10
Nov-13
Vol m




Source: Bloomberg
Avg Turnover (SGD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (SGD)
Free float (%)
Share outstanding (m)
Shareholders (%)
3.41m/2.69m
-7.3
48.8
0.29 - 0.50
42
2,098
SK Tiong Enterprise Sdn Bhd
Hung Yung Enterprise Sdn Bhd
Su Kouk Tiong
27.3
15.2
7.8
Share Performance (%)

Home run quarter. Nam Cheong’s 3QFY14 PATMI is nearly as high as
FY12’s bottomline, in a sign of how far the company has come within two
years. Revenue this quarter was particularly high as a record 16 vessels
were sold, compounded by a margin surge to 24% from 17-20% in the
previous four quarters. Net gearing stood at a healthy 44.6%.
Shallow-water developments to surge according to IHS-Petrodata.
The number of shallow-water developments could grow steadily to 593 in
2020 from 76 in FY15 (See Figure 2), according to IHS-Petrodata,
requiring shallow-water vessels which are Nam Cheong’s specialisation.
This is in line with our view that the lower oil prices are unlikely to have a
significant impact on shallow-water operations, or future sales.
Raise FY14-16 estimates by 11%/11%/13%. Nam Cheong’s prospects
look bright with a net orderbook of MYR1.4bn (a figure which has
remained stable over the last three quarters even after MYR1.4bn in
revenue recognitions), with strong sales prices combining with improved
yard efficiencies resulting in margin boosts. We raise margin
assumptions in each year by up to 1.5ppts, resulting in our FY14-16
forecasts rising by 11-13%. Our FY14F PATMI implies a conservative
MYR50m bottomline for 4Q14.
Citius, Altius, Fortius (Faster, Higher, Stronger). Like an Olympic
competitor pushing his performance limits, we believe Nam Cheong has
yet to hit peak earnings, with the 20 diesel-electric vessels to begin
contributions next year and margins still holding strong. The stock trades
at compelling valuations of 5.7/4.9x FY15/16F P/E and with ROEs
improving towards 30%. We raise our TP to SGD0.61 (from SGD0.58)
as we roll over to a heavier weightage on FY15F earnings, but make a
concession to the weaker market sentiment by adjusting our P/E multiple
to 9x from 10x. Maintain BUY. Nam Cheong remains one of our Top
Picks in the sector.
YTD
1m
3m
6m
12m
Absolute
30.2
(2.4)
(11.8)
12.3
41.4
Forecasts and Valuations
Dec-12
Dec-13
Relative
26.4
(4.3)
(11.7)
11.2
38.0
Total turnover (MYRm)
877
1,257
1,866
2,455
2,969
Reported net profit (MYRm)
137
206
311
391
452
Recurring net profit (MYRm)
137
193
311
391
452
Recurring net profit growth (%)
46.6
41.6
60.6
25.9
15.6
Shariah compliant
Dec-14F
Dec-15F
Dec-16F
Recurring EPS (MYR)
0.07
0.09
0.15
0.19
0.22
Lee Yue Jer, CFA +65 6232 3898
DPS (MYR)
0.01
0.03
0.04
0.05
0.06
[email protected]
Recurring P/E (x)
14.8
11.5
7.2
5.7
4.9
P/B (x)
3.42
2.38
1.90
1.50
1.21
P/CF (x)
27.6
Jesalyn Wong +65 6232 3872
[email protected]
9.1
15.4
1.2
2.5
3.5
4.4
6.1
EV/EBITDA (x)
15.7
12.8
8.7
6.4
5.5
Return on average equity (%)
25.6
26.9
29.5
29.5
27.2
Net debt to equity (%)
39.4
52.1
55.5
34.6
27.1
17.6
29.1
40.4
Dividend Yield (%)
Our vs consensus EPS (adjusted) (%)
na
na
Source: Company data, OSK-DMG
See important disclosures at the end of this report
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1
Nam Cheong (NCL SP)
12 November 2014
Additional Notes
Figure 1: Results in review
MYR ('000)
Shipbuilding
Charter income
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Finance costs
Share of profit / (loss) from JV
Profit before tax
Income tax expense
Minority interest
PATMI
Group gross margin
Net margin
Segment Revenues
Shipbuilding
Chartering
3Q13
2Q14
3Q14
319,690 355,581 595,099
YoY
86%
QoQ
67%
21,537
23,231
23,522
341,227 378,812 618,621
(253,925) (311,858) (469,896)
87,302
66,954 148,725
186
7,623
1,116
9%
81%
85%
70%
nm
1%
63%
51%
122%
-85%
-34%
nm
nm
104%
-6%
nm
115%
67%
96%
-5%
102%
nm
149%
100%
(22,525)
(1,529)
0
63,434
(4,270)
(8,897) (14,881)
(3,847)
(7,540)
2,336
2,217
64,169 129,637
(1,133)
(3,998)
263
654
63,299 126,293
58,691
25.6%
17.2%
17.7%
16.7%
Net increase of one vessel in fleet.
Higher YoY due to rental income from Suntec City office property. Lower QoQ
due to MYR5.8m gains on derivatives in 2Q14.
Increased due to issue of Medium Term Notes.
Far exceeded ours/street expectations. Expect street upgrades of 15-20%
in response.
24.0%
20.4%
3Q13
319,690
21,537
2Q14
355,581
23,231
3Q14
595,099
23,522
YoY
86%
9%
QoQ
67%
1%
72,753
14,549
60,428
6,526
143,038
5,687
97%
-61%
137%
-13%
Gross Margins
Shipbuilding
22.8%
17.0%
24.0%
Chartering
67.6%
28.1%
24.2%
Gross Profits
Shipbuilding
Chartering
Reasons
Increase in order wins in 3Q14 to 16 vessels from seven in 3Q13. Nam Cheong
has completed and delivered 18 vessels YTD, compared to 14 vessels in 9M13.
Margins significantly higher than expected as vessels sold this quarter enjoyed
strong pricing and yard efficiencies continue to improve.
One vessel's contract ended in 3Q14 and disposed of in subsequent 4Q14.
Source: Company, OSK-DMG
Figure 2: Offshore developments still going strong
Source: IHS-Petrodata c/o Company, Nov 2014
See important disclosures at the end of this report
2
Nam Cheong (NCL SP)
12 November 2014
Figure 3: S-Curve revenue recognition model for shipbuilding programme 1/3
ID
Delivery Status
by year
Price
(USD'000)
2013
1301
1302
1303
1304
1305
1306
1307
1308
1309
1310
1311
1312
1313
1314
1315
1316
1317
1318
1319
1320
2013
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
AWB
AWB
AWB
AWB
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
Delivered
32,000
11,900
11,283
11,500
11,500
11,283
12,500
12,500
20,000
19,500
19,500
20,010
30,000
33,400
32,100
19,500
29,500
29,500
29,500
27,800
32,000
1401
1402
1403
1404
1405
1406
1407
1408
1409
1410
1411
1412
1413
1414
1415
1416
1417
1418
1419
1420
1421
1422
1423
1424
1425
1426
1427
1428
1429
1430
2014
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
AHTS
PSV
AWB
AWB
MWV
MWV
PSV
PSV
ERRV
ERRV
ERRV
AHTS
AHTS
AHTS
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Order Book
Stock
Order Book
Order Book
Order Book
Order Book
Order Book
Stock
Stock
Order Book
Order Book
Order Book
BNI Order
BNI Order
BNI Order
11,283
11,283
11,300
12,000
14,000
12,000
14,500
14,500
31,800
19,500
20,500
20,500
30,000
30,000
30,000
30,000
14,500
34,000
29,500
29,500
29,000
30,000
30,000
30,000
11,775
11,775
11,775
6,120
6,120
6,120
8,703
2,933
2014F
2015F
2016F
8,349
9,200
9,775
8,349
12,500
12,500
4,000
19,500
19,500
16,808
3,340
963
15,588
12,173
19,175
19,175
14,550
15,450
15,450
24,000
7,800
6,000
4,500
26,550
16,225
24,650
2,355
1,766
1,766
5,508
1,224
1,224
1,950
2,065
2,128
8,349
11,300
12,000
14,000
12,000
14,500
14,500
31,800
4,950
5,050
5,050
6,000
22,200
24,000
25,500
14,500
34,000
2,950
13,275
4,350
30,000
30,000
30,000
9,420
10,009
10,009
612
4,896
4,896
Source: OSK-DMG
See important disclosures at the end of this report
3
Nam Cheong (NCL SP)
12 November 2014
Figure 4: S-Curve revenue recognition model for shipbuilding programme 2/3
ID
1501
1502
1503
1504
1505
1506
1507
1508
1509
1510
1511
1512
1513
1514
1515
1516
1517
1518
1519
1520
1521
1522
1523
1524
1525
1526
1527
1528
1529
1530
1531
1532
1533
1534
1535
Delivery Status
by year
2015
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
WB
WB
WB
WB
AWB
ERRV
ERRV
ERRV
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Order Book
Order Book
Order Book
Order Book
Order Book
Stock
Stock
Stock
Stock
Stock
Stock
Order Book
Order Book
Stock
Stock
Build to Order
Build to Order
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Build to Order
Build to Order
Build to Order
Price
(USD'000)
12,000
12,000
12,000
12,000
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
14,500
21,000
21,000
21,000
21,000
30,000
30,000
32,500
32,500
30,000
30,000
30,000
30,000
30,000
30,000
30,000
13,500
13,500
13,500
2013
2014F
2,400
2,320
1,740
1,305
12,760
2,900
435
4,200
3,150
1,300
23,075
17,875
27,900
25,500
2,025
2,025
2015F
2016F
12,000
12,000
9,600
12,000
14,500
14,500
14,500
14,500
12,760
13,195
1,740
11,600
14,065
14,500
14,500
14,500
14,500
21,000
21,000
16,800
17,850
30,000
30,000
8,125
14,625
2,100
4,500
30,000
30,000
30,000
30,000
30,000
13,500
11,475
11,475
Source: OSK-DMG
See important disclosures at the end of this report
4
Nam Cheong (NCL SP)
12 November 2014
Figure 5: S-Curve revenue recognition model for shipbuilding programme 3/3
ID
1601
1602
1603
1604
1605
1606
1607
1608
1609
1610
1611
1612
1613
1614
1615
1616
1617
1618
1619
1620
1621
1622
1623
1624
1625
1626
1627
1628
1629
1630
1631
1632
1633
1634
1635
1636
1637
Delivery Status
by year
2016
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
AHTS
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
PSV
AWB
AWB
AWB
AWB
AWB
MWV
MWV
MWV
AHTS
ERRV
ERRV
ERRV
AWB
AWB
LOI
LOI
LOI
LOI
LOI
LOI
LOI
LOI
LOI
Option
Option
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Build to Order
Build to Order
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Stock
Build to Order
Build to Order
Build to Order
Build to Order
Build to Order
Price
(USD'000)
2013
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
31,000
31,000
20,000
20,000
30,000
30,000
30,000
30,000
30,000
32,500
32,500
32,000
29,500
29,500
29,500
29,500
29,500
28,000
28,000
28,000
16,500
13,500
13,500
13,500
42,000
42,000
2014F
2015F
2016F
14,850
4,290
540
540
1,680
11,610
11,610
29,820
23,100
1,650
12,210
16,500
16,500
12,210
3,300
13,860
13,860
16,500
16,500
16,500
31,000
31,000
16,800
16,800
30,000
30,000
30,000
30,000
2,100
32,500
32,500
32,000
24,780
24,780
25,960
29,500
29,500
23,520
24,640
25,480
16,500
13,500
1,350
1,350
10,500
18,900
4,290
13,200
2,640
2,640
3,200
3,200
27,900
4,720
4,720
3,540
4,480
3,360
2,520
Model Revenue (USD'000)
2013
404,850
2014F
548,629
2015F
743,100
2016F
902,274
USD-MYR
3.02
3.23
3.21
3.21
Model Revenue (MYR'000)
1,221,637
1,771,192
2,385,648
2,896,660
Source: OSK-DMG
*Note: Nam Cheong has not released its FY16F shipbuilding programme. The company has not disclosed the
number of vessels sold on letters of intent (LOI) due to commerciality reasons. The LOIs may not be
converted to firm contracts and their vessel delivery dates may not all fall in FY16F. Our table above is based
on our best forecast.
See important disclosures at the end of this report
5
Nam Cheong (NCL SP)
12 November 2014
Financial Exhibits
Profit & Loss (MYRm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
877
1,257
1,866
2,455
2,969
Cost of sales
(688)
(993)
(1,484)
(1,954)
(2,394)
Gross profit
189
264
382
501
576
Gen & admin expenses
(50)
(66)
(68)
(88)
(101)
Operating profit
139
199
314
414
475
Operating EBITDA
144
212
329
430
493
(13)
(15)
(17)
(18)
139
199
314
414
475
Net income from investments
3
3
8
10
10
Other recurring income
5
9
19
20
20
(8)
(11)
(22)
(40)
(39)
Depreciation of fixed assets
Operating EBIT
(6)
Interest expense
Exceptional income - net
-
Pre-tax profit
139
Taxation
13
(2)
212
Dec-16F
-
-
-
318
404
467
(14)
(6)
(8)
(12)
(1)
0
(1)
Minority interests
-
Profit after tax & minorities
137
206
311
391
452
(1)
Reported net profit
137
206
311
391
452
Recurring net profit
137
193
311
391
452
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
139
199
314
414
475
6
13
15
17
18
(60)
(419)
(362)
(164)
(326)
Source: Company data, OSK-DMG
Cash flow (MYRm)
Operating profit
Depreciation & amortisation
Change in working capital
Other operating cash flow
10
10
26
30
30
Operating cash flow
95
(197)
(6)
296
198
(39)
Interest paid
(17)
(34)
(22)
(40)
Tax paid
(5)
(0)
(8)
(12)
(14)
Cash flow from operations
74
(231)
(37)
244
145
Capex
2
(36)
(45)
(30)
(31)
Other investing cash flow
(8)
(81)
-
-
-
Cash flow from investing activities
(6)
(117)
(45)
(30)
(31)
Dividends paid
(9)
(26)
(79)
(79)
(98)
-
Proceeds from issue of shares
-
119
-
Increase in debt
145
401
459
Other financing cash flow
Cash flow from financing activities
Cash at beginning of period
Total cash generated
(4)
(1)
(0)
50
-
(150)
-
132
493
380
(29)
27
216
362
660
846
199
145
298
186
(134)
Forex effects
(12)
Implied cash at end of period
215
5
366
(248)
-
-
-
660
846
712
Source: Company data, OSK-DMG
See important disclosures at the end of this report
6
Nam Cheong (NCL SP)
12 November 2014
Financial Exhibits
Balance Sheet (MYRm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total cash and equivalents
216
362
660
846
712
Inventories
454
751
1,017
1,070
1,312
Accounts receivable
452
635
920
1,211
1,464
Other current assets
29
51
51
51
51
Total current assets
1,151
1,799
2,648
3,178
3,539
Tangible fixed assets
145
290
320
333
346
17
90
90
90
90
161
380
410
423
436
Total other assets
Total non-current assets
Total assets
Dec-16F
1,313
2,179
3,058
3,601
3,975
Short-term debt
155
242
701
751
601
Accounts payable
257
381
569
749
918
0
5
5
5
5
Total current liabilities
413
628
1,275
1,505
1,524
Total long-term debt
294
609
609
609
609
13
4
4
4
4
Total non-current liabilities
307
613
613
613
613
Total liabilities
720
1,241
1,888
2,118
2,137
Share capital
370
488
488
488
488
Retained earnings reserve
231
411
643
956
1,310
Other current liabilities
Other liabilities
Other reserves
(9)
39
39
39
39
938
1,170
1,483
1,837
-
1
0
1
1
-
0
0
0
0
592
939
1,170
1,483
1,838
1,313
2,179
3,058
3,601
3,975
Shareholders' equity
592
Minority interests
Other equity
Total equity
Total liabilities & equity
Source: Company data, OSK-DMG
Key Ratios (MYR)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
44.6
43.5
48.4
31.6
21.0
Operating profit growth (%)
36.7
43.5
57.9
31.7
14.9
Net profit growth (%)
46.6
50.5
51.0
25.9
15.6
EPS growth (%)
46.6
37.7
50.2
26.0
15.6
Bv per share growth (%)
24.9
44.1
24.8
26.7
23.9
Operating margin (%)
15.8
15.8
16.8
16.8
16.0
Net profit margin (%)
15.6
16.4
16.6
15.9
15.2
Return on average assets (%)
12.0
11.8
11.9
11.7
11.9
Return on average equity (%)
25.6
26.9
29.5
29.5
27.2
Net debt to equity (%)
39.4
52.1
55.5
34.6
27.1
DPS
0.01
0.03
0.04
0.05
0.06
Recurrent cash flow per share
0.04
(0.11)
(0.02)
0.12
0.07
Source: Company data, OSK-DMG
See important disclosures at the end of this report
7
Nam Cheong (NCL SP)
12 November 2014
SWOT Analysis
 The world’s largest offshore supply vessel (OSV)
builder by vessels delivered
 New
competition
from China’s
merchant vessel
builders
 Partnerships with yards make for an asset-light and
capacity-flexible model, helping it to weather lean
times
 The “letter of authorisation” system in Malaysia
protects Nam Cheong’s key market
 ASEAN
countries are
rapidly boosting
exploration and
production
(E&P) capex
 The industry is
currently in a
major upswing
due to massive
rig orders
 The company’s build-to-stock model is deemed risky
by investors, although this is mitigated by its record
orders on hand, asset-light strategy and dominant
industry position in Malaysia
P/E (x) vs EPS growth
P/BV (x) vs ROAE
28%
10
12%
5
-4%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG
Jan-16
Jan-15
Jan-14
Jan-13
-20%
Jan-12
0
27%
3
23%
3
19%
2
16%
2
12%
1
8%
1
4%
0
0%
P/B (x) (lhs)
Jan-16
15
31%
4
Jan-15
44%
35%
4
Jan-14
20
5
Jan-13
60%
Jan-12
25
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile
Nam Cheong (NCL) is the largest OSV builder in the world with a 12% share of the global shallow-water OSV market. It specialises in
building small-mid anchor handling tug supply (AHTS), platform supply vessels (PSVs), workboats and accommodation barges. It also
operates a fleet of standby vessels and a number of OSVs in conjunction with its partners.
See important disclosures at the end of this report
8
Nam Cheong (NCL SP)
12 November 2014
Recommendation Chart
Price Close
0.58
0.58
0.58
0.41
0.45
0.48
0.48
0.52
0.53
0.58
0.45
0.37
0.38
0.34
3.00
0.39
3.50
0.35
0.33
0.33
0.35
0.35
0.34
0.30
Recommendations & Target Price
0.29
4.00
na
4.50
2.50
2.00
1.50
1.00
0.50
Buy
0.00
Nov-09
Neutral
Feb-11
Sell
Trading Buy
May-12
Take Profit
Not Rated
Aug-13
Note: Nam Cheong listed via RTO in May 2011. Previous stock prices pertain to Eagle Brand Holdings and
are irrelevant
Source: OSK-DMG, Bloomberg
Date
Recommendation
2014-10-19
Buy
Target Price Price
0.58
0.40
2014-09-29
Buy
0.58
0.44
2014-08-20
Buy
0.58
0.48
2014-08-08
Buy
0.58
0.47
2014-08-05
Buy
0.53
0.47
2014-07-01
Buy
0.53
0.41
2014-05-15
Buy
0.52
0.38
2014-03-31
Buy
0.48
0.34
2014-02-26
Buy
0.48
0.34
2014-02-20
Buy
0.45
0.34
Source : OSK-DMG, Bloomberg
See important disclosures at the end of this report
9
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