Nam Cheong profits up by 35%: RHB

Company outlook is good.

Energy company Nam Cheong is expected to continue to deliver sturdy quarterly earnings with 2H14 to be stronger, with higher vessel sales being the main earnings driver.

A report by RHB reveals that, assuming Nam Cheong sold before delivery all of its FY14 stock and 40% of FY15’s shipbuilding programme, 18 vessels may be sold in the last five months of 2H14. RHB expects Nam Cheong’s profits to be up by 35% year on year, on the back of a strong orderbook. Currently, Nam Cheong is trading at 9x FY14F EPS and 38% core PATMI growth.

A SWOT analysis by RHB shows that Nam Cheong is the world’s largest offshore supply vessel builder by vessels delivered and partnerships with yards make for an asset-light and capacity-flexible model, helping it to weather lean times.

Opportunities for Nam Cheong are in the boosting of exploration and production (E&P) capex in Asean countries and in the major upswing of the industry due to massive rig orders.

Investors deem risky the company’s build-to-stock model, although this is mitigated by its record orders on hand, asset-light strategy, and dominant industry position in Malaysia.

RHB thinks Nam Cheong should prepare for new competition from China’s merchant vessel builders.