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Wednesday, January 29, 2014

Nam Cheong - First salvo of the year


 Nam Cheong - First salvo of the year 

Written By Stock Fanatic on Tuesday, January 28, 2014 | 28.1.14

Nam Cheong fired its first salvo of the year with the sale of four emergency response and rescue vessels (ERRVs) and one 6,600 bhp anchor handler worth US$70m in total. We lift our FY14-15 EPS forecasts by 3-13% as we factor in this and the US$66m vessel sales on 30 Dec 2013. However, we cut our FY13 EPS by 4% as the sale of a 5,000 dwt platform supply vessel did not materialise in 4Q13. 
We maintain our Add rating, with a higher target price, still at 8x CY15 P/E (peers’ average). Nam Cheong has recorded two consecutive record years of vessel sales and we believe that another record year should propel its share price to our target price.

What Happened
Nam Cheong has sold four ERRVs and a 6,600 bhp AHTS for US$70m to a repeat customer, Sentinel Marine, to which it had sold four EERVs a year ago. The vessels will be delivered between 3Q15-1Q16. The ERRVs would be built under Nam Cheong’s build-to-order model while the AHTS would be constructed as part of the group’s build-to-stock programme. Separately, we also incorporate into our earnings model the vessel sales worth US$66m made on 30 Dec 2013 - it sold three 5,150 bhp AHTS to its 49%-owned JV Bahtera Niaga Indonesia and one maintenance/work vessel to Icon Offshore. The deliveries are scheduled between 2Q14-3Q14. For the sales to the JV, we only factor in the revenue/profits of Nam Cheong’s unrelated interests in the JV.
What We Think
Leveraged for the upcycle. In our view, Nam Cheong’s business model works best in an upcycle, which is where we are now. Nam Cheong has achieved two consecutive record years of vessel sales (2012: US$425m; 2013: US$500m), and we expect vessel sales for 2014 to at least match that of 2013. 
4QFY13 earnings review

Nam Cheong is set to announce its 4Q13 earnings on 26 Feb, before the market opens. After our earnings cut for FY13, we now expect Nam Cheong to post RM45.7m core earnings for 4Q, bringing FY13 core earnings to RM180.8m (+32% yoy). We had previously expected Nam Cheong to sell its last vessel from its 2013 building programme in 4Q14 (a 5,000 dwt PSV est. at US$32m). We know expect the vessel to be sold this year. 

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