Excerpts from analysts' reports

CIMB says buy Nam Cheong (54 cents target) ahead of blistering 3Q results

yeozhibinAnalyst: Yeo Zhi Bin (left)

Nam Cheong has bagged US$126m vessel sales in Sep, taking YTD vessel sales to US$505m, surpassing the 2013 record of ~US$500m. It is also investing around US$30.7m (implied 1x P/BV) for a 30% stake in the enlarged share capital of BBRM, the indirect subsidiary of Marco Polo Marine.

We bump up our FY14-16 EPS by 2-3% as we update our vessel recognition schedule and raise contributions from vessel chartering, thus lifting our target price – still pegged to 9x CY15 P/E (peer average).

With vessel sales announced on 19 Aug to be materially recognised in 3Q, we expect Nam Cheong to post a blistering 3Q net profit of RM88M (+50% yoy), its highest quarterly net profit ever that augurs well for its near-term share price performance.

Maintain Add with catalysts coming from stronger-than-expected sales and earnings. 

namcheong_build9.14Nam Cheong builds offshore support vessels (OSVs) for use in the offshore oil and gas industry. CIMB expect its 3Q net profit to hit RM88M (+50% yoy), its highest quarterly net profit. 
Photo: Company


OSK-DMG highlights Nam Cheong's move to build recurring charter income

: Lee Yue Jer, CFA (left)

Nam Cheong will acquire c.30% of PT Bina Buana Raya (BBR), an associate of Marco Polo Marine (MPM) for USD30.7m. BBR will use the proceeds to purchase five OSVs from Nam Cheong and three from MPM worth USD170m in total.

Nam Cheong has also sold another three vessels worth USD41m, maintaining its gross orderbook at MYR1.9bn. We like its move towards building a recurring charter income base. Maintain BUY, with a SGD0.58 TP (31.8% upside).

Positive engagement. Nam Cheong will take up a 30% stake in BBR (BBRM IJ, NR), an associate of MPM (MPM SP, BUY, TP: SGD0.65) for USD30.7m (1.6bn shares at IDR230/share). The deal is priced at book value.

BBR will utilise the proceeds to purchase five offshore support vessels (OSVs) from Nam Cheong and three OSVs from MPM worth USD170m in total, split evenly in value. This acquisition will allow Nam Cheong to grow its chartering business more rapidly in cabotage-protected Indonesian waters, where charter rates enjoy a premium. 

As charterers appear to command higher valuations in the market compared with builders, this may also lead to a P/E rerating for Nam Cheong when its charter income grows.

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