Cash-Positive Again and Piling Up $: What Are Growth Areas for This Company?

 



This is how Nordic's financial metrics stack up: 

Other key takeaways from the FY25 briefing: 

• Strong Profitability and Margins: CFO Chia Meng Ru emphasized improved operational metrics, noting that the operating margin was 19% for 2HFY25 (2HFY24: 12.5%) and full-year net profit hit $19 million (+9%).
  
  
• Growing Net Asset Value (NAV): The company continues to build fundamental value, with the NAV inching up to 35.5 cents per share.
  
  
• Stable Order Book and Recurring Revenue: The total order book stands at $201.9 million, supported by a growing maintenance pipeline.
  
  The CFO emphasized that the company's "diversified portfolio and recurring maintenance contracts... provide stability even in uncertain... political environment," with maintenance contracts lasting anywhere from "1 to 20 years" and mostly being renewed upon completion.

1. On Gross Margins and Revenue Outlook

• Questions: Will the gross margin stay at above 30%?
  
  With the decreased balance in project services, do you expect FY2026 revenue to be lower than FY2025?
  
  
• Reply: The CFO explained that the high 31.1% gross margin was due to a "reversal of unutilized contingency cost from completed project" of about $3 million, mostly from a Malaysian project.
  
  Going forward, the "group's normalized GPM will be about 25%".
  
  Regarding revenue, the CFO replied, "Our revenue should be consistent between this year and last year. But it also depends on contract wins".
  
  
  

2. On Capital Allocation and Dividends

• Questions: Given the group net cash position, would you increase the dividend payout ratio or continue share buybacks?
  
  How to boost the share price... with the company at net cash, maybe some special division [dividend] will push it?
  
  
• Reply: The CFO stated that increasing the base payout ratio "reduces reinvestment flexibility," so the company will "retain its dividend policy of 40% and consider a special dividend when appropriate".
  
  

3. On Growth Potential

• Question: Could management share what needs to happen for Nordic to enter the next phase of growth and whether this will come from larger projects, new industries or acquisitions?.
  
  
• Reply: The CFO indicated that the next growth phase "will likely come from larger semiconductor, defense and marine projects".
  
  Nordic is also expanding into industries like "aerospace, green energy" via its precision engineering arm.
  
  In various parts of the results briefing, business heads gave an overview of their business opportunities, with Dorcas Teo, CEO of Nordic Flow Control, saying Nordic is bidding on or negotiating to supply and commission system integration systems worth up to S$55 million.
  
  The target vessels span bulk carriers and oil tankers to FPSOs.
  
  Rodney Koh, the CEO of subsidiary Avitools, touched on a massive potential US$20 million pipeline to manufacture components for industrial battery storage systems.
  
  These are designed for AI data centers in the US, with production shifting from China to Thailand to meet client requirements.
  
  Astro Chang (CEO of Starburst) outlined it's vyving for S$130 million of work over the next two to three years from clients who are primarily law enforcement agencies and the military.
  
  The business tends to be "projects driven and then converted to maintenance after that".
  
  When asked about the confidence level in securing these deals, Astro said the historical success rate is around 80%, adding "it's my job to make sure that it's closer to 100%".
  
  Jeanette Lee, CEO of Envipure, revealed that Envipure aims to secure the initial EPC contract (for water/wastewater treatment systems, etc) to supply Micron's US$24 billion expansion plan in Singapore.
  
  Once the system is delivered and the plant expands, Envipure expects further opportunities to provide ongoing facility management and operation/maintenance services, deepening their product and service footprint with Micron, a multi-decade customer.
  
  

Data: FY2024 annual report; figures have changed slightly since then.

4. On Spinning Off the Precision Engineering Business

• Question: Years ago, it was mentioned that Nordic planned to spin off its precision engineering segment. Is the company still exploring this option?.
  
  
• Reply: The Chairman Chang Yeh Hong explained that previously, Nordic hesitated to invest heavily in the segment's machinery because "We love cash, and I still love cash".
  
  However, because US clients are shifting supply chains and the company (Avitools) is setting up operations in Thailand, Nordic is "still open" to an exit strategy but is willing to reinvest if the pipeline remains strong.
  
  

5. On Geopolitical Risks

• Question: "How much will this Iran war affect Nordic's business?".
• Reply: The CFO replied that the "Middle East is not a very big segment yet" and currently "there's not much impact on us".

→ See Nordic's FY25 Powerpoint deck here. 

→ Also: NORDIC: After a long drought, 2 analyst initiation reports in 2 weeks for this company. What's up?