4Q13 PATMI beat our and consensus expectations due mainly to tax reversal. DPS of SGD 1.0 cent proposed.

2015 shipbuilding programme to consist of 35 vessels worth USD700m, marginally above our forecast.

Maintain BUY. Raise TP to SGD0.41, pegged to 9x FY14E P/E.

What’s New

Adjusting for MYR12.6m of tax reversal, Nam Cheong reported 4Q13 PATMI of MYR57.8m (+17.2% YoY, -2.3% QoQ), beating our and consensus expectations. However, on a PBT level, the number was in line with our estimate. Shipbuilding gross margin was sustained at above 20% level for the quarter. We attribute the stronger YoY performance to the higher number of vessels delivered and the ensuing positive tax effects. A dividend of SGD 1.0 cent per share (0.5 first and final plus 0.5 special) was declared.

What’s Our View

Management said the 2015 shipbuilding programme will consist of 35 vessels worth a total of USD700m. These include built-to-order (BTO) vessels as well. Our initial forecast, however, takes into account 28 vessels worth USD560m, but they exclude the BTO vessels. Adding all in, the value of the shipbuilding programme is marginally higher (~USD10m) than our initial forecast. Current orderbook, which consists of 24 vessels, stands at MYR1.5b.

So far, Nam Cheong has sold 16 of the 30 vessels scheduled for delivery this year. With demand for offshore supply vessels (OSV) recovering, management expresses confidence in winning new orders, a viable trend for the next 2-3 years in our view.

We adjust our FY14E/15E earnings by -1%/5%. We expect earnings to be sustained at 20% above FY13 levels for the next three years, driven by sustained OSV demand. We value the stock on 9x FY14E P/E, yielding a TP of SGD0.41. Reiterate BUY.

Source: Maybank Kim Eng Research - 28 Feb 2014