Nam Cheong Limited - OCBC Investment 2015-11-13: Marginally Profitable in 3Q15

Nam Cheong Limited - OCBC Investment 2015-11-13: Marginally Profitable in 3Q15 NAM CHEONG LIMITED N4E.SI 


 Revising estimates lower 
 No new vessel sales since Mar 
 Avoid for now 

RM6,000 net profit in 3Q15 

  • Nam Cheong reported a 69% YoY fall in revenue to RM189.3m and close to a 100% fall in net profit to RM6,000 in 3Q15, compared to net profit of RM126.3m in 3Q14 and RM10.7m in 2Q15. 
  • This brings 9M15 net profit to RM50.0m, accounting for just 33% of our full year estimate. 
  • Results were below ours and the street’s expectations, and we have cut our FY15/16 earnings by 57% and 50%, respectively. 

Chartering saw a gross loss 

  • On a segmental breakdown, shipbuilding revenue in 3Q15 was down 69% YoY but up 2% QoQ at RM182.1m, while gross margin for this segment declined from 24.0% in 3Q14 and 15.3% in 2Q15 to 14.3% in 3Q15. 
  • Vessel chartering revenue was also down 70% YoY and 47% QoQ at RM7.1m and this segment went into a gross loss in the quarter. The group added one AHTS vessel (currently on-hire) to the fleet in 3Q15, bringing the total fleet size to 17. 

Deferments in deliveries likely 

  • As in 2Q15, there were no vessel sales; YTD there had only been two sales in Mar worth RM212m. 
  • The group still has eight unsold vessels for this year under its shipbuilding programme, of which five are PSVs, two are AHTS vessels and the remaining one an accommodation work barge. 
  • Besides these eight, there are seven vessels that the group sold earlier and scheduled to be delivered by the end of this year. 
  • As the offshore market remains quiet, there are likely to be deferments in deliveries for the 15 vessels. 

Hard to beat the tide 

  • Meanwhile, the group had an order book of about RM1.4b (as at end 3Q15), of which RM880m remains unrecognised (~25% to be booked this year). 
  • Though Nam Cheong’s share price has corrected ~50% since our downgrade to Sell in mid-May, tougher times could lie ahead for the group. 
  • Due to weak earnings visibility, we switch our valuation to 0.65x P/B to account for the low ROE, and weak outlook which would affect vessel values and may result in potential losses. As such, our fair value estimate slips from S$0.17 to S$0.14. 
  • Maintain SELL.

Low Pei Han CFA OCBC Securities | 2015-11-13
OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 0.14 Down 0.17