Towards Financial Freedom

Nam Cheong - Best Ever Quarter Coming Right Up

kiasutrader
Publish date: Sat, 09 Nov 2013, 11:54 PM
kiasutrader
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Following Message
NCL will announce its 3Q13 results next Tuesday morning. We expect earnings  to  surge  60%  y-o-y  and  24%  q-o-q  to  MYR50m  for  the company's best ever quarter. This will be largely contributed by  healthy vessel sales in 3Q and a record orderbook that provides a high base for revenue recognition.  These  results and stronger guidance should take the stock to new heights. Reiterate BUY, with a SGD0.39 TP.
  • Record orderbook and  robust  vessel sales.  Nam Cheong (NCL) has a  MYR1.7bn-strong  orderbook,  which  provides  a  growing  base  of revenue recognition every quarter. It has sold 20 vessels YTD, just one vessel shy of matching last year's record.
  • Quarterly  bottomline  to  set  new  record.  We expect  the  company  to report  3Q  earnings  at  least  MYR50m,  setting  a  new  quarterly  profit record. This will take  the company's  9M13 earnings  to MYR127m, thus meeting 69% of our FY13F estimate. All said, we also expect NCL to end the year with a similarly strong 4Q.
  • Street needs to raise estimates.  Street expectations of NCL's  FY13F results range  from MYR162m-188m and averages  MYR173.6m. We see likely upgrades on those figures, albeit at the lower end of the range.
  • Results,  stronger  guidance  may  take  shares  to  new  high.  NCL shares  have  not  moved  much  over  the  last  half-year  although  the company  has continued to build value through selling more vessels. We believe that the upcoming set of results will be a strong catalyst to spark a  rally  in  its  share  price  to  new  heights.  Its  management's  positive guidance might also be support the stock's price appreciation.
  • Accumulate  ahead  of  results.  Maintain  BUY,  with  a  SGD0.39  TP. NCL is one of our Top Picks for this sector, as it combines strong growth and  a  high ROE,  for  a low 7-8x P/E.  Our SGD0.39  TP  is based on 10x blended  FY13F/14F  EPS.  As  we  believe  that  the  upcoming  quarters' operating  outperformance  has  not  been  priced  in,  investors  should accumulate ahead of the announcement of NCL's results.
Note:  NCL only has one vessel remaining in its shipbuilding programme  that is  due for delivery this year. We believe the company is holding out on selling the vessel  in order to secure a higher price for the last available short-lead-time asset.
Financial Exhibits
SWOT Analysis
Company Profile
Nam  Cheong  (NCL) is  the  largest  OSV  builder  in  the  world,  with  a  10% share  of  the  global  shallow-water  market.  It specialises  in building small-mid AHTS, PSVs and accommodation barges. It also operates a fleet of standby vessels.
Recommendation Chart
Source: OSK
Nam Cheong (N4E)
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