Nam Cheong’s first diesel-electric AHTS vessel snapped up by eager customers

The new ships were sold out on launch.

Nam Cheong launched its first diesel-electric anchor handling tug and supply vessel, the NCA80E, last Friday. The shipbuilder reported that customers signed letters of intent worth USD186m for a mix of “sale and charter” for 12 vessels, with options taken for the remaining eight in the series.

The LOIs mean that its new vessels are sold out for the next three years. According to OSK DMG, all of the 20 NCA80E vessels planned for delivery in FY16 and beyond were snapped up by five customers: Bumi Armada, Vega Offshore, Geooffshore, Opstad and Sofield, with the last three being new customers.

“It's easier to secure an iPhone 6 Plus than a NCA80E. A In effect, this was a sold-out launch with no new supply for the next three years. The eight options (four to Bumi Armada and four to GeoOffshore) have a short expiry of 90-120 days and we expect them to be exercised in 1Q15. We also expect those vessels which are on time charters to be chartered for five years, providing a visible source of recurring income to the shipbuilder,” reported OSK DMG. 

Here’s more from OSK DMG:

Bringing change to the OSV market. We see Nam Cheong bringing change to the OSV industry with its mix of ready stock and lower-cost standardised vessels. 

By taking on the construction risk, Nam Cheong is rewarded with higher margins and lower chances of contract cancellations – as its customers would already have charters secured. By effecting a disruption to the current build-to-order model, Nam Cheong has been expanding its global market share.

Raising estimates on new information. As diesel-electric vessels command higher prices than traditional AHTS, we raise our FY15/16F estimates by 2.0/4.1%. 

The stock has fallen 27% from its peak, presenting an attractive entry point at merely a 5.6x FY15F P/E. Maintain BUY, with a SGD0.58 TP (10x blended FY14F/FY15F P/E). Nam Cheong remains a Top Pick in the offshore & marine sector.