NAM CHEONG LIMITED
N4E.SI
Weakened vessel sale potential
- 2Q15 missed. Cut FY15-17E EPS by 31-54% as we see weaker vessel-sale potential.
- Hard for all eight outstanding vessels for 2015 to be sold. 2016 shipbuilding programme likely to be scaled down, which will be a negative catalyst.
- Downgrade from HOLD to SELL with TP slashed from SGD0.32 to SGD0.17, at 0.7x P/BV.
What’s New
- 2Q15 PATMI of MYR10.7m (-83.1% YoY, -72.8% QoQ) missed expectations.
- 1H15 PATMI of MYR50.0m formed 25%/23% of our/consensus FY15E.
- The weak performance was attributed to weaker shipbuilding recognition. Only one vessel was delivered in 2Q15 (1Q15: 6, 2Q14: 4).
- There was also no additional vessel sale in 2Q15 while it sold two in 1Q15.
- Shipbuilding gross margin of 15.3% is at the low end of its 15-20% guidance.
What’s Our View
- Management said that order enquiries were very low in 1H15 but has since picked up. It believes that there are still pockets of demand in West Africa and Mexico, but given a deteriorated oil price outlook, we think that the chance of disappointment is high.
- It still has eight unsold vessels for 2015 of which five are PSVs.
- We think that it may not be able to sell all eight in 2015 and expect at least three PSVs to flow over to 2016.
- Consequently, we see a high chance that it may have to scale down its 2016 shipbuilding programme from 30 vessels to about 16 vessels.
- Fortunately, Nam Cheong’s outsourcing model and long-term relationship with the outsourced Chinese yards allow them to defer vessels for which construction has not started, without penalty.
- We cut FY15/16/17E EPS by 39/54/31% as we lower vessel sale assumptions.
- Net gearing has risen from 0.45x in 1Q15 to 0.83x in 2Q15, although we expect that to come down in FY16E from positive FCF.
- Downgrade from HOLD to SELL with TP slashed from SGD0.32 to SGD0.17, now at 0.7x FY16E P/BV.
Yeak Chee Keong CFA | http://www.maybank-ke.com.sg/ Maybank Kim Eng 2015-08-14
0.17
Down
0.32
