Why Nam Cheong's second quarter results may ignite stock

Robust vessel sales to back up growth.

According to OSK, Nam Cheong's (NCL) 2Q results should reignite confidence in stock. 

Here's more:

NCL’s stock has been trading sideways recently in part due to the fact that its 1QFY13 numbers only met 20%/22% of our and street estimates. Our 2QFY13 forecast will bring the 1H13 tally to MYR76m, at 42%/46% of our/street forecasts, which should put it well on track to deliver strong growth over FY12.

2H typically comprises 57%-79% of full-year results. In the last three years, NCL delivered 57%, 79%, and 59% of its full-year net profits in the 2H period. Our model indicates that its performance this year will follow a similar pattern due to the S-curve of revenue recognition on vessels sold.

Management confident of record vessel sales this year. In its 23 July announcement, NCL said it is “on track to surpass a record high of 21 vessel sales achieved in 2012”. We see a combination of a strong 2Q and clear positive guidance prompting the stock’s re-rating.

Record orderbook reduces risk; 91% of FY13F revenue now in hand. The company’s MYR1.5bn worth of orders in hand has significantly reduced NCL’s key risk of being unable to sell its stock.

Furthermore, our model shows that its confirmed orderbook that will be recognized this year has reached 91% of our FY13F revenue estimate. This reinforces our confidence in our above-street bottomline forecast.

As we stated in our 24 June report, ”Cautious Street Numbers Create Opportunities”, NCL’s fundamentals are rock solid, with i) a record orderbook; ii) low net gearing; iii) strong cashflow, and iv) high ROE/ROIC of 25%/21%.

As the world’s largest OSV builder, NCL is a key beneficiary from Petronas’ demand and a glut in yard space in China. Maintain BUY, with SGD0.35 TP.