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Monday, December 30, 2013

Nam Cheong - Anticipating a New Year’s Gift


We anticipate NCL announcing a series of orders to close off FY13. We also take this opportunity to roll our valuation over to 10x FY14F P/E for a SGD0.45 TP (from SGD0.41). It remains a Top Pick in the oil & gas (O&G) sector with its strong 24% earnings growth and undemanding 6.7x FY14F P/E, supported by an expected dividend increase to yield 3.0-4.2% over FY13-15F.

■ Expecting a New Year’s gift
We expect NCL to give shareholders a New Year present with some new orders. The last platform supply vessel (PSV) for CY13 delivery should be sold, together with some vessels for CY14 delivery, if its pattern of selling vessels in batches holds. This will bring FY13 vessel sales to ≥22, exceeding FY12’s record of 21.

■ PSV delivery more likely in 1Q14
We note a strong possibility of the last PSV delivery being negotiated to 1Q14. This is purely operational, as owners prefer a vessel’s build date to be recorded as “2014” instead of “2013”, thereby appearing to be a year younger by merely delaying the delivery by a score of days. Therefore, we will not be surprised if the upcoming sales announcement includes this little twist – it will not have much impact on our estimates.

■ Entering 2014 in a position of strength
NCL’s orderbook is at a record MYR1.7bn (1 Jan 2013: MYR1.3bn). It delivered its strongest ever quarterly earnings (MYR58.7m) in 3Q13 and its strong orderbook offers a high level of baseline activity that secures future quarters’ profitability. Meanwhile, the large rig orderbook and the tightening global offshore support vessel (OSV) supply present positive industry dynamics that presage a healthy tailwind for NCL, which is now the largest shallow water OSV builder in the world (>12% market share).

■ A sector Top Pick, raise TP to SGD0.45

NCL’s stock combines a high 24% growth with an undemanding 6.7x FY14F P/E, 6.8x EV/EBITDA, 0.12x net gearing and expected increases in dividend to yield of 3.0- 4.2% over FY13-15F. This combination of high growth, low valuations, and dominant market position with a positive industry backdrop makes NCL one of our sector Top Picks. (Read Report)

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