Vessel sales at a new record. Nam Cheong simultaneously announced a contract for four AHTS vessels, totalling US$45.13m, bringing the number of vessels sold this year to a record 18. While the value of the vessels was slightly below expectations, this is in line with the fall in equipment prices (which form a significant chunk of OSV costs), and hence Nam Cheong should be able to maintain its margins. We expect at least two more vessels to be sold this year.

All set for a blockbuster 4Q. Our S-curve revenue recognition model informs us that a grand finale is on the cards. 3Q revenue was low due to a number of smaller vessels being on the start/tail-ends of construction (which provide low revenue recognition). 4Q will enjoy a larger number of high-value vessels and more vessels on the steep middle section of the curve. We are looking at a top/bottom line of RM400m/60m, bringing FY12F PATMI to a record RM147m.

S$110m MTN are aces up the sleeve. While the company was understandably tight-lipped about its plans for the RM275m recently raised, we note that no growing company raises money in a hurry to pay interest for nothing. We point to the recent example of Ezion which saw a raft of contracts following the placement. With half the FY13F-delivery vessels already sold, we strongly believe that Nam Cheong is expanding its shipbuilding programme for FY14F, and perhaps even for FY13F by bringing forward delivery plans, which would be a catalyst providing upside to our estimates and triggering consensus upgrades.

Maintain estimates, TP raised to S$0.30. With this strong result, we are confident in maintaining our Buy call with a slightly higher TP of $0.30, based on 8.5x blended FY12F/13F EPS, rolling over to a heavier weight on FY13F.

            

Source: OSK