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Thursday, January 10, 2013

Nam Cheong - On track for strong growth


Analyst: Suvro Sarkar, DBS Vickers

Nam Cheong is the largest builder of offshore support vessels (OSVs) for Malaysian waters, and remains in a sweet spot with Petronas committed to its offshore capex plans over the next five years.

It has also extended its geographical reach to new markets like West Africa, which offer good potential in for the future.

In FY2012, the shipyard sold a record high of 21 vessels, backed by healthy recurrent demand for OSVs in Malaysia and overseas. 

It has now also sold more than half of its 19 vessel build-to-stock models for FY2013. Its order book was close to the record level of RM1.5 billion in end-2012, and should drive healthy earnings growth in FY13/14.
Expectations for robust earnings ahead should help re-rate stock.

The analyst expects the following:
>> More order flows from Petronas-linked projects in Malaysia in 1H FY2013, as activity on the ground picks up steam.
>> FY2014 newbuild programme will be larger than in FY13, in line with the still robust outlook for oil & gas exploration & production activities
>> The S$110 million raised through its recent medium-term notes issuance will also help support growth.
“We remain comfortable with our projection of close to 30% earnings CAGR over FY11-13. Maintain BUY with target price of 30 cents, pegged to 9x FY13 earnings.”

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