NAM CHEONG LIMITED
N4E.SI
Nam Cheong Ltd - No respite from industry downcycle
Unsold built-to-stock vessels remain a challenge.
- Nam Cheong has not secured any order wins since 1Q15.
- The company’s net orderbook has thus experienced a steady decline from RM1.3bn as at end-FY14 to RM880m as at end-3Q15.
- Eight vessels remain unsold under its 2015 built-to-stock programme, with another 18 unsold under the 2016 programme. Among these, 12 are PSVs, which remain one of the most oversupplied vessel types in the offshore service vessel market. This does not bode particularly well for Nam Cheong’s vessel sales prospects in the near to medium term.
Profit warning for 4Q15.
- We think the loss guidance for 4Q15 could be due to steep slowdown in revenue recognition for vessels under construction, as customers are probably attempting to stretch out delivery dates further.
- Order cancellations are also possible.
- Nam Cheong’s net margins have trended down in recent quarters, with 3Q15 just breaking even on a net profit level.
Cutting earnings estimates further.
- In light of worsening industry fundamentals, we have slashed our net profit estimates for FY16 and FY17 by 64% and 49% to RM29m and RM42m respectively.
- But even this is subject to downside risks and red ink on the bottomline cannot be ruled out.
Valuation:
- Given the lack of vessel sale momentum, we believe downside risks prevail for Nam Cheong.
- We downgrade the stock from HOLD to FULLY VALUED with a lower target price of S$0.07 per share, pegged to 0.4x P/BV, rolling over our valuation base to FY16.
- Dividends are likely to be suspended in a bid to conserve cash amid the current uncertain climate.
Key Risks to Our View:
- A sharp spike in the oil price – albeit unlikely in our view – could result in some uplift in vessel sales, boosting earnings and the share price.
Suvro SARKAR
DBS Vickers
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http://www.dbsvickers.com/
2016-02-15
DBS Vickers
SGX Stock
Analyst Report
0.07
Down
0.09
