Above expectations on margin surprise. Nam Cheong delivered a record 3Q13 net profit of MYR59.2m (+88% YoY, +44% QoQ) on revenue of MYR341.2m (+140% YoY, +24% QoQ). 3Q13 shipbuilding margin surprised positively at 22.8% (2Q13: 17.3%, 3Q12: 25.2%) on a better mix of higher value PSVs and work barges sold. Stronger revenue and margins for the chartering segment (14.8% of 9M13 gross profits) also contributed to this strong set of results. 9M13 net profit made up 79% of our initial FY13 forecast, validating our positive view on the stock.

Vessel sales on track to set new record on robust demand. 20 vessels have been sold YTD and we forecast Nam Cheong to sell up to 25 vessels in FY13, surpassing the record 20 units in FY12. 57% of the vessel scheduled to be delivered in FY14 has already been sold. Outstanding order book stands at MYR1.7b, of which MYR1.4b remains unrecognised.

OSV demand returning; Nam Cheong stands to gain. Management shared that shallow and mid-water regions are seeing a pickup in demand for OSVs, especially for small-sized AHTSs and mid-sized PSVs. Given its build-to-stock model, Nam Cheong stands to gain. This supports our view that newbuild program will be higher in 2015, which explains our expectation of a 16% EPS CAGR over FY13-15. The returning strength of the OSV market is further validated by Nam Cheong’s plan to increase its chartering fleet from 14 vessels currently to up to 20 vessels by 2015.

Reiterate Buy, TP unchanged at SGD0.37. We raise FY13 earnings by 8% given the strong 3Q13. FY14-15 forecasts are cut marginally by 1%. Our TP remains unchanged at SGD0.37, which is pegged to 9x above-peer PER on average FY13-15 earnings. We continue to like Nam Cheong for its exposure to (1) a recovering OSV market, (2) Petronas oil & gas capex and (3) attractive FY14 PER valuation of 6.1x with 16% EPS CAGR over FY13-15.  

Source: Maybank Kim Eng Research - 13 Nov 2013