Background: Nam Cheong is an offshore marine group headquartered in Malaysia, which specializes in building and chartering offshore support vessels. Currently it has a shipbuilding orderbook of over RM800m, and has the capability of building offshore vessels such as AHTSs, SSVs, accommodation barges/workboats, and PSVs. Major customers include Bumi Armada, Petra Perdana, Topaz and Vroon. It also owns and operates 10 vessels (mainly SSVs).
Recent development: Nam Cheong was listed on the SGX in April 2011 through a reverse takeover of Eagle Brand. The timing of its listing has not been fortuitous as its share price has been hit by the market selldown. From an issue of $0.19, the stock now trades lower by 30% to $0.13.
Key ratios…
Price-to-earnings: 5.4x
Price-to-NTA: 1.6x
Dividend per share / yield: na
Net cash/(debt) per share: (S$0.047)
Net debt as % of market cap: 36%
Share price (S$) 0.13
Issued shares (m) 1913.1
Market cap (S$ m) 258.3
Free float (%) 28.7%
Recent fundraising -
Financial YE 31 Dec
Major shareholders Mgmt/founders – 59.3%
YTD change -36.1%
52-wk price range S$0.175 – 0.380
Our view
Patchy earnings track record. Nam Cheong’s earnings have historically been rather volatile, due to its contract orderbook shipbuilding business. In FY10, turnover was halved due to less recognition of shipbuilding contracts from a declining orderbook, with profits down 31%. This year is shaping up to be even lower, with fewer vessels being delivered due to the lingering effects of the 2008/2009 downturn.
Local advantage. Longer term, however, Nam Cheong believes that it is in a good position as a Malaysian shipbuilder, as Malaysian constructed vessels are sought out for operations in the Malaysian offshore oil & gas industry due to local content requirements. Petronas has been ramping up its local activities, which has boosted the overall Malaysian offshore sector.
Location, location, location. Nam Cheong’s historical PER stands at 6.9x, which is below those of Bursa-listed Malaysian offshore stocks which trade in the mid to high teens. Valuations are closer to SGX-listed yards such ASL and Marco Polo. Overall, however, we are not sanguine about the outlook for offshore stocks in general in the current market environment, where valuations are likely to stay depressed.
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