Towards Financial Freedom
NAM CHEONG - Fast-paced pas de deux
Nam Cheong announced that it has sold two 300-men Accommodation Work Barges for a combined US$59m to Perdana Petroleum Berhad. They are scheduled for delivery in 2Q 2013. The contract price, at US$29.5m each, came 9.3% above our estimate of US$27m due to equipment variations. This is the second order in two weeks, for a combined 5 vessels totalling US$102.8m.
Soon to beat 3Q 2011 record bottom line. With these contracts in hand, our model informs us that Nam Cheong can at least match the record RM46.8m net profit in 3Q 2011. That would bring 9M2012 net profit to RM102.5m, handily beating the entire FY11's RM93.2m. Another vessel sale this quarter would put Nam Cheong on course to set a new record quarterly and 9M2012 profit.
Order momentum beginning to pick up. After a dry 2Q12 without orders, Nam Cheong has within two weeks secured orders for five vessels, bringing the gross order book to RM1.06b. We are forecasting the sale of another five vessels within this financial year, comprising a mix of AHTS vessels and PSVs, which should help to further catalyze the share price.
Watch the 12,000bhp AHTS sale. A key risk to FY12F EPS is the timing of the sale of the almost-complete 12,000bhp AHTS vessel. Should this vessel be sold in 1Q 2013 instead of this year, our FY12F bottom line would fall to RM132m, with the difference in profits shifted to FY13F, increasing it to RM197m. While we flag this issue for attention, we are fundamentally indifferent to a few weeks' delay in profit recognition and our TP will not be affected.
Maintain Buy with a TP of $0.290. We continue to value Nam Cheong at 8.5x blended FY12F/13F EPS for a TP of $0.290. Nam Cheong's strong EPS growth profile warrants a much higher valuation than the current 6.4x, and we hold that this is a strong candidate to double within 3 years.
Source: OSK
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