Co. Reg No: 198700034E MICA (P) : 099/03/2012

Singapore Initiating Coverage

23 October 2013

Nam Cheong

Buy (new) Share price: Target price:

Risk Taker Sees Rewards; Initiate BUY

SGD0.285 SGD0.37 (new)

Risk-taking to pay off, initiate with BUY. We initiate coverage on Nam Cheong with a BUY rating and TP of SGD0.37, pegged to 9x PER on average FY13-15F EPS. We see Nam Cheong benefiting from (1) a recovering Offshore Support Vessel (OSV) market, (2) OSV replacement cycle, (3) Petronas’ Oil & Gas capex and (4) its foresight in reading the supply-demand dynamics of the sector. We expect the company to deliver 16% EPS CAGR over FY13-15F as vessels in its ramped-up newbuild programs are readily absorbed by the market.

YEAK Chee Keong, CFA [email protected] (65) 6432 1460

Stock Information Description: Malaysia’s largest OSV shipbuilder, specialising in designing and building of offshore support vessels for the offshore oil and gas sector. Ticker: Shares Issued (m): Market Cap (USD m): 3-mth Avg Daily Turnover (USD m): ST Index: Free float (%):

NCL SP 2,103.1 483.2 1.3 3,212.38 40.6

Major Shareholders: SK Tiong Enterprise Hung Yung Enterprise Tiong Su Kouk

% 27.3 15.2 7.8

Key Indicators ROE – annualised (%) Net gearing (x): NTA/shr (MYR sens): Interest cover (x):

19.3 0.31 37.7 12.7

Historical Chart 0.30

Leveraging on the ties that bind. As the largest domestic OSV builder in Malaysia, Nam Cheong has established close ties with the country’s leading OSV owners, which include Bumi Armada, Perdana Petroleum and Icon Offshore, who are Petronas-licensed operators. Consequently, Nam Cheong stands to benefit indirectly from Petronas’ MYR300b (USD100b) capex spending plan over 2011-2015. Unfailing record in vessel sales to boost record revenue in FY14F. Nam Cheong has demonstrated a strong ability to read market demand with a track record of selling all pre-built vessels before delivery. The 28 vessels to be built for 2014 is a big ramp-up over the 19 vessels for 2013 and it has already sold 57% of the 2014 vessels. Outstanding orderbook stands at MYR1.7b. We forecast 2015 program to be on a similar scale as 2014. If it can maintain its track record of selling all vessels before they are delivered, we forecast record sales close to MYR2.0b in FY14F. Inexpensive valuations, potential for higher yield. At current share price, stock is trading at only 6.1x/6.6x FY14F/15F PERs, inexpensive considering the robust growth prospects. We also see possibility of higher dividend payout in FY14F translating into a yield of about 5%.

NCL SP Equity

0.29

Build-to-stock (BTS) – the right model to ride the recovering cycle. We expect the OSV ordering cycle to turn positive and in our view, Nam Cheong possesses the right model to capitalise on this cyclical upswing. By building vessels on a speculative basis, Nam Cheong will have available vessels ahead of shipyards which build only upon receiving orders. This model has also allowed Nam Cheong to charge premium prices and deliver higher-than-peer margins.

0.28 0.27 0.26

Nam Cheong Limited – Summary Earnings Table

0.25

FYE Dec (MYR m) Revenue EBITDA Recurring Net Profit Recurring Basic EPS (MYR sens) EPS growth (%) DPS (MYR sens)

0.24 0.23 0.22 0.21 Oct-12

Dec-12

Feb-13

Performance: 52-week High/Low

Absolute (%) Relative (%)

Apr-13

Jun-13

Aug-13

Oct-13

SGD0.300/SGD0.230

1-mth

3-mth

6-mth

1-yr

YTD

0.0 0.8

3.6 4.4

16.3 19.8

21.3 15.0

7.5 6.0

FY11 606.2 111.2 93.2 4.9 (22.0) 0.5

FY12 876.6 150.3 136.6 7.1 46.6 1.3

FY13F 1,319.0 204.4 172.5 8.2 14.9 1.6

FY14F 1,989.8 302.9 252.7 12.0 46.5 3.7

FY15F 1,819.8 280.5 233.7 11.1 (7.5) 3.4

PER EV/EBITDA (x) Div Yield (%) P/BV(x)

15.0 16.0 0.7 2.9

10.2 11.8 1.8 2.4

8.9 8.7 2.1 1.7

6.1 5.9 5.0 1.4

6.6 6.3 4.6 1.2

Net Gearing (%) ROE (%) ROA (%) Consensus Net Profit (MYR m) Source: Company, Maybank KE

63.0 20.8 9.6

38.2 25.6 12.0

38.7 23.3 10.9 173.7

54.3 25.3 12.0 203.2

25.9 19.7 10.3 220.2

SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Nam Cheong Limited

Key Investment Merits OSV recovery on track. We forecast an improvement in OSV supplydemand dynamics which would bring about a recovery in OSV newbuilding orders. We assume that oil price would remain at levels (more than USD80/bbl) sufficient to justify most offshore oil and gas spending. Rising OSV charter rates and utilisation are data points that add to our optimism. Three key structural factors lend further support to the long-term demand for OSVs: (1) Additional 169 rigs entering into service over 2013-2015 would require the support of more than 650 additonal OSVs (2) Increasing complexity in offshore operations require newer and more sophisticated vessels and (3) A batch of about 750 (~25% of existing fleet) aged fleet that are more than 25 years old is in need to be replaced. The right model to ride the cycle. We are sure that Nam Cheong’s BTS model, as opposed to a Build-to-order (BTO) model is the right one to ride this recovering cycle. The ability to provide an earlier delivery lead time puts Nam Cheong ahead of most shipbuilders to fill the immediate demand-supply gap created from a returning demand. Consequently, Nam Cheong could charge premium prices resulting in higher margins. While the speculative build model has its risks, we think that this would not be a cause for concern during a cyclical upswing in OSV demand. Domestic market lends support. As Malaysia’s largest OSV shipbuilder, Nam Cheong offers exposure to the country’s growing offshore oil and gas sector. Nam Cheong edges out its Asian peers with its close relationships with Petronas-licensed OSV asset owners, such as Bumi Armada, Perdana Petroleum and Icon Offshore. These relationships have allowed it to benefit indirectly from Petronas’ MYR300b capex spending, which held up its business during periods when other OSV builders were suffering from a more muted ordering environment. We believe that Nam Cheong would continue to exercise this competitive edge over other Asian players for the next 3 years. Step-up in 2014 newbuild program demonstrate its confidence. The substantial step up in its 2014 building program (28 vessels) vis-àvis 2013 (19 vessels) reflects its strong confidence in future demand. It has already sold 57% of the vessels scheduled for delivery in 2014. We believe that Nam Cheong’s customers would have provided indicative interests on future orders, in order for Nam Cheong to commit to such a ramp up in newbuilding program. We suspect that there would be more demand from OSV owners who are gunning for Petronas-related contracts. Higher-than-expected 2015 newbuild program would trigger positive EPS revision. We forecast 2015 newbuilding program (yet to be revealed) to be on a similar scale as the 2014 program. This is the key reason why our FY14-15F net profit forecasts are 6-24% higher than consensus estimates. We believe that market has been conservative in its expectation for this newbuild program. If the program (set to be revealed in 1Q14) turns out as we expect, this should trigger upward earnings revisions and would be a positive share price catalyst. Initiate with BUY, TP SGD0.37. We initiate coverage on Nam Cheong with a BUY call and TP of SGD0.37, which is pegged to 9x PER on average FY13-15F earnings. Nam Cheong generates superior margins and higher ROEs in comparison to its peers. We also believe that risk of speculative build is mitigated by the strong demand in its home market. 23 October 2013

Page 2 of 29

Nam Cheong Limited

Valuation and Recommendation Look at average earnings due to cyclicality. We value Nam Cheong at SGD0.37/sh, pegged to 9x PER on average FY13-15F earnings. Given the lumpiness in earnings, and the time gap between vessel sale and revenue recognition, taking a 3-year average forward EPS would offer a better representation of Nam Cheong’s sustainable earnings level and smooth out extreme fluctuations arising from recognition timing. This would also capture contracts and sale that have already been secured or made but not yet recognised. Will benefit disproportionately due to strong domestic demand, TP of SGD0.37 offers 30% upside. At current share price, stock is trading at only 6.1x/6.6x FY14F/15F PERs, which is inexpensive considering Nam Cheong’s edge and robust growth prospects. Our valuation PER multiple of 9x, is higher than the 7-8x that peer OSV shipbuilders are trading at. We believe that this premium valuation is fair as we weigh the risks of its BTS model against its higher growth potential. Relative to its peers, Nam Cheong’s position as the leading OSV builder in Malaysia would see it benefiting disproportionately from a cyclical upswing due to the additional support from Petronas’ MYR300b capex plan over 2011-2015. This underlies our strong earnings growth assumption. Nam Cheong also generates superior ROEs and higher margins than peers. Our TP indicates a 30% capital upside potential. We also see possibility for higher dividend payout in FY14F based on our expectation of a record profit, which translates into an implied FY14F dividend yield of about 5%. Figure 1: Nam Cheong 1-yr Fwd PER

Figure 2: Nam Cheong 1-yr Fwd PBR P/B (x) 1.8

1.6

+1 SD = 1.5x

7.0 1.4

- 1 SD = 1.3x

Jun-13

May-13

Apr-13

Mar-13

Jan-13

Feb-13

Dec-12

Oct-12

Nov-12

Sep-12

Aug-12

Jul-12

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

Apr-13

May-13

Feb-13

Mar-13

Jan-13

Dec-12

Nov-12

Oct-12

Sep-12

Aug-12

Jul-12

Jun-12

Source: Bloomberg, Maybank KE

1.0

Jun-12

1.2

5.0 4.0

Mean = 1.4x

- 1 SD = 6.1x

Oct-13

Mean = 6.7x 6.0

Sep-13

+1 SD = 7.4x

Jul-13

8.0

Aug-13

P/E(x) 9.0

Source: Bloomberg, Maybank KE

P/B valuation levels. Nam Cheong’s slightly higher P/B relative to its peers is due to its asset light structure where it outsources most of its shipbuilding operations. Based on its 1-year forward P/B trend, the stock is trading near the mean level. However, the strong earnings in the next few years would lift book value from current MYR0.38 to MYR0.60 and we see the stock trading to higher valuation levels at the same time. Implied FY15F P/B based on our TP of SGD0.37 is 1.6x.

23 October 2013

Page 3 of 29

Nam Cheong Limited Figure 3: Peer valuation table Mkt Cap (US$m) Keppel Corp 15,807 Sembcorp Industries 7,841 Sembcorp Marine 7,740 Singapore rig and shipbuilders

Curr S$ S$ S$

Rec. Buy Hold Buy

Target Price 12.33 5.48 5.20

Last Price 10.86 5.45 4.60

W W W W

N.R N.R N.R N.R

N.A. N.A. N.A. N.A.

42,650 37,100 279,000 175,000

1,470 3,657 885 909 4,053

S$ S$ HK$ HK$ Y

Sell Sell N.R N.R N.R

0.65 0.98 N.A. N.A. N.A.

0.82 1.19 0.98 10.96 17.92

Vard Holdings

822

S$

Buy

1.12

0.87

Dec

(46.1) (49.5) 63.3

Nam Cheong Jaya Holdings ASL Marine Triyards. OSV shipbuilders

483 429 226 154

S$ S$ S$ S$

Buy N.R N.R N.R

0.37 N.A. N.A. N.A.

0.29 0.69 0.67 0.65

Dec Jun Jun Aug

46.6 3.4 39.9 420.3 92.8

46.5 19.0 6.2 10.7 29.1

Alam Maritime 396 Bumi Armada 3,670 Perdana Petroleum 313 Perisai Petroleum 411 SapuraKencana 7,712 Malaysia OSV owners

RM RM RM RM RM

Buy Buy Buy Sell Buy

1.90 4.40 2.50 1.25 4.60

1.57 3.97 1.94 1.39 4.08

Dec Dec Dec Dec Jan

362.5 31.1 25.8 (10.0) 21.5 13.8 (95.1) (1,410) 70.1 268.1 (20.8) 3.5 73.7 24.2 131.4 (261.1) 27.5

Tidewater Inc. GulfMark Offshore Hornbeck Offshore DOF ASA Farstad Shipping Int'l OSV owners

$ $ $ NOK NOK

N.R N.R N.R N.R N.R

N.A. N.A. N.A. N.A. N.A.

3,084 1,442 2,110 532 858

Mar 78.2 29.4 Dec (61.8) 257.7 Dec (1,244) 143.0 Dec (127.6) 41.3 Dec (45.1) 4.4 (280.2) 95.1

Samsung Heavy. 8,706 Daewoo Shipbuilding 6,603 Hyundai Heavy 16,098 Hyundai Mipo 3,227 Korea rig and shipbuilders Cosco Corp Yangzijiang China Rongsheng Guangzhou Shipyard China CSSC China shipbuilders

3,084 1,442 2,110 532 858

EPS Growth (%) EV/EBITDA (x) P/E (x) P/B (x) ROE (%) Div Yield (%) FYE FY12A FY13F FY14F FY12A FY13F FY14F FY12A FY13F FY14F FY12A FY13F FY14F FY12A FY13F FY14F FY12A FY13F FY14F Dec 20.6 (28.8) 2.6 11.9 13.2 12.4 8.7 12.2 11.9 2.1 2.0 1.8 26.9 16.6 15.8 4.1 4.1 4.1 Dec (7.0) 0.8 17.2 8.4 7.7 6.7 12.9 12.8 10.9 2.2 1.9 1.7 17.5 15.9 16.4 2.8 2.8 2.8 Dec (28.6) 7.7 27.7 13.8 10.9 8.5 17.8 16.5 13.0 3.9 3.5 3.0 22.2 22.3 24.9 2.4 3.3 3.3 (5.0) (6.8) 15.8 11.4 10.6 9.2 13.1 13.9 11.9 2.7 2.5 2.2 22.2 18.3 19.0 3.1 3.4 3.4 Dec Dec Dec Dec

(7.9) 12.5 (2.6) 7.2 (67.7) 8.7 100.9 19.6 (61.5) (37.7) 37.6 8.8 (51.7) (199.4) (150.7) 16.8 (47.2) (54.0) (3.7) 13.1

Dec (24.4) (57.8) Dec (8.2) (20.7) Dec (132.6) 179.4 Dec (97.5) Dec (98.8) 1,050 (72.3) 287.7

14.9 (16.0) (24.9) (30.8) (21.3)

11.6 31.6 15.7 35.5 23.6

10.3 29.1 25.1 21.5

10.6 14.5 18.2 70.4 28.4

1.8 1.5 1.0 1.1 1.3

1.6 1.5 1.2 1.2 1.4

1.4 1.3 1.1 1.2 1.3

16.1 4.8 6.6 3.0 7.6

14.0 9.7 6.3 1.7 7.9

1.2 0.7 0.9 0.9 0.9

1.2 0.8 0.9 0.7 0.9

1.2 0.9 0.9 0.7 0.9

13.8 12.2 17.3 4.3 5.0 6.4 181.4 9.1 66.2 11.8

41.0 8.1 77.9 42.3

33.3 9.5 22.7 21.8

1.4 1.5 0.4 1.4 1.4 1.2

1.4 1.2 0.4 1.0

1.4 1.1 0.5 1.0

8.2 3.4 4.2 24.8 16.7 12.4 (3.8) (11.5) (10.2) 0.3 0.2 5.9 2.9 2.1

2.5 4.2 0.0 1.3 0.1 1.6

1.2 4.6 0.0 2.0

1.8 4.6 0.0 2.2

4.4

7.4

5.6

5.3

10.5

6.4

1.5

1.6

1.3

26.4

14.6

22.7

0.0

3.5

5.2

11.8 7.7 7.1 3.0 6.8

8.7 5.3 7.7 7.3

5.9 4.7 7.6 5.9

10.2 9.3 6.2 3.4 6.9

8.9 11.1 8.3 5.0 8.7

6.1 9.3 7.8 4.5 6.8

2.4 0.8 0.7 1.3

1.7 1.6

1.4 1.4

25.6 8.7 12.0 18.2

23.3 18.9

25.3 24.0

1.8 5.8 3.0 0.0 2.1

2.1 5.7 3.0 0.0 2.9

5.0 6.6 3.0 5.0

34.4 16.6 25.5 20.2 32.5 25.8

26.2 13.0 14.1 12.1 15.1 16.1

16.2 11.1 9.5 13.7 13.6 12.8

21.2 30.1 12.8 38.9 25.8

16.2 24.8 20.0 16.2 22.4 19.9

12.9 21.8 11.8 15.6 18.1 16.0

2.4 3.1 2.1 2.5 3.2 2.6

2.1 2.8 1.9 2.3 2.8 2.4

1.8 2.5 1.6 2.2 2.5 2.1

11.6 10.6 (0.8) 21.9 10.8

13.7 11.9 10.0 14.6 13.4 12.7

15.1 12.1 14.9 14.4 14.8 14.2

0.2 0.6 0.4

0.2 0.0 0.0 0.0 0.0

0.2 0.0 0.0 0.0 0.0

13.0 17.6 13.4 8.5 10.0 12.5

10.1 11.1 10.0 7.7 8.7 9.5

7.8 7.8 6.9 6.8 7.2 7.3

20.5 72.8 56.9 27.7 16.3 38.8

15.9 20.3 23.4 19.6 15.6 19.0

10.9 11.5 13.2 5.5 8.7 10.0

1.2 1.4 1.8 0.8 0.7 1.2

1.1 1.3 1.7 0.6 0.7 1.1

1.0 1.2 1.5 0.5 0.7 1.0

6.0 1.9 3.2 2.9 4.6 3.7

7.3 6.7 7.4 3.5 4.7 5.9

10.0 11.2 11.8 9.9 8.1 10.2

1.6 1.9 0.0 2.3 1.4

1.6 1.3 0.0 0.0 2.7 1.1

1.7 1.3 0.0 0.0 3.2 1.2

23.1 11.4 (15.3) 3.9 (21.2) 243.5 31.1 57.5 15.5

45.9 76.2 77.2 258.1 78.0 107.0

6.9 20.7 10.8 12.8

7.1 14.9 9.3 28.4 14.9

16.1 5.1 4.3 (3.2) 5.6

Source: Bloomberg, Factset, Maybank KE

23 October 2013

Page 4 of 29

Nam Cheong Limited

OSV demand backed by structural factors - Recovery is Imminent Nam Cheong’s position is further steadied by Petronas’ spending in Malaysia

OSV market tightening. We see the OSV shipbuilding market entering into a recovery phase after a period of suppressed growth from vessel oversupply and subdued demand. Charter rates have risen higher along with increasing tightness in utilisation rates. Barring a major fall out in the world economy or an unexpected collapse in oil prices, we believe that long-term fundamentals driving the offshore oil and gas sector remain intact. Compared to international players, Nam Cheong’s position is further steadied by Petronas’ intended MYR300b spending in the Malaysia oil and gas sector. Many OSV owners are optimistic on outlook. Poring through second-quarter financial results releases and conference call transcripts of international OSV owners, we note that many expressed positive sentiments and renewed confidence after seeing better rates and improved utilisation for the quarter. This includes Malaysia players such as Bumi Amarda, who plans to grow its OSV fleet from 40+ to 80+ vessels in 5 years, and Perdana Petroleum who expects an upsurge in OSV market to lead to higher demand ahead.

Figure 4: North Sea Utilisation rates North Sea rates are a barometer for global health as excess capacity then gets distributed to other regions

Figure 5: Average OSV spot charter rates Upward trajectory in rates is partly seasonal but importantly rates are higher YoY £/day 140,000

100% 90%

All Cargo Runs

80%

120,000

Cargo Runs PSV's up to 900m2

70%

100,000

Cargo Runs PSV's over 900m2

60%

CNS/NNS/WoS Rig Moves

80,000

50%

60,000

40% 30%

20,000

0%

0

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

10%

Med PSV

Large PSV

Source: Seabrokers Group, Maybank KE

Med AHTS

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

40,000

20%

Large AHTS

Source: Seabrokers Group, Maybank KE

OSV oversupply to ease. In addition, we expect an easing of the oversupply situation as OSV orderbook-to-fleet ratio drops further. About half of the 526 OSV on order would be delivered by 2013, which should bring orderbook-to-fleet ratio down to more normalised levels of around 10%, from current levels of 17%. Figure 6: Orderbook-to-fleet ratios improving, bulk of deliveries in 2013 Orderbook Delivery Total 2013 2014 2015+ AHTS 4 - 7,999 BHP 103 58 43 2 AHTS 8 - 9,999 BHP 13 7 6 0 AHTS 10 - 15,999 BHP 21 10 5 6 AHTS 16 - 19,999 BHP 12 7 5 0 AHTS 20,000+ BHP 14 7 7 0 AHTS Total 163 89 66 8 PSV < 500m2 64 36 27 1 PSV 500 - 749m2 80 32 39 9 PSV 750 - 899m2 81 26 40 15 PSV 900+m2 139 50 72 17 PSV Total 364 144 178 42 OSV Total 527 233 244 50 Source: RS Platou, Maybank KE

23 October 2013

Total Fleet 1,156 220 320 119 69 1,884 381 451 111 276 1,219 3,103

Orderbook-to-fleet ratio Aug-13 Jan-13 Jan-12 9% 8% 12% 6% 3% 7% 6% 12% 10% 11% 28% 20% 18% 21% 9% 8% 13% 17% 16% 10% 18% 11% 11% 73% 97% 79% 50% 60% 76% 30% 31% 27% 17% 17% 18%

Page 5 of 29

Nam Cheong Limited

More offshore rigs coming onstream over the next few years will require more OSVs to provide support

More rigs coming onstream. According to Riglogix, about 169 new rigs would be delivered from 2013 to 2015. This influx of new rigs would naturally require OSVs to support their operations. Assuming that about 4 OSVs are required to support each rig, we estimate that about 676 OSVs would be needed to maintain a current OSV-to-rig ratio of about 4. We also expect a steady flow of new rig contracts, in line with our positive view on the rigbuilders, which should fuel future demand for OSVs. Figure 7: New Rigs coming onstream 80 Global Contracted Newbuild

70

Global Uncontracted Newbuild

60 50 40 30

43

50

20

17

16

20 9 10

23

11

0 6

0 7

0 4

2016

2017

2018

2019

0 2013

2014

2015

0 1 2020

Source: Bloomberg, Riglogix

Structural mismatch masked from headline figures. OSV-to-Rig ratio was down to 3.4x during market peak (ie. about 3.4 OSVs were supporting the operation of one rig) and was at 4.8x during the market trough in Jan 2011. This ratio currently stands at about 4.2x. Without considering attrition, the current OSV supply looks just about sufficient to maintain a 4.0-4.3x OSV-to-rig ratio. However, the headline statistics mask a structural mismatch: many of the older OSVs are not capable of supporting the more complex operations required in the present day. Figure 8: OSV/Rig ratios during Peak and Trough periods July 2008 (Peak)

Jan 2011 (Trough)

Aug 2013

Working Rigs 603 538 715 Rigs under construction 186 118 207 OSV Global Population 2,033 2,599 3,005 OSV under Construction 736 367 432 OSV/Rig Ratio 3.37 4.83 4.20 Source: ODS-Petrodata, Tidewater, Maybank KE

End 2013F (+39 ) 754

End 2014F (+63) 817

End 2015F (+50) 867

(+252) 3,257

(+233) 3,490

(+41) 3,531

4.32

4.27

4.07

Aging OSVs needs to be replaced. About 25% of the world’s fleet (about 750 vessels) is more than 25 years old and these vessels are incapable of meeting today’s more stringent work requirements. If these vessels are removed from the OSV fleet, 2015 OSV-to-rig ratio would look nearer to 3.2x. A fleet replacement trend for the OSV market is indeed underway and looks likely to accelerate given the intensifying work demands of today’s offshore operations. This is evident from the bifurcation in charter rates where newer and higher specification vessels are able to command increasingly higher rates than older vessels. OSV owners are looking to upgrade their fleets in order to cater to the higher standards required, fitting with sophisticated technologies such as DP system and propulsion systems.

23 October 2013

Page 6 of 29

Nam Cheong Limited Figure 9: About 25% (~750 vessels) of worldwide OSV fleet are more than 25 years old 300 250

Vessels > 25 years old 200 150 100 50 0

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Source: ODS Petrodata, Tidewater

Figure 10: Most OSV owners are positive on future demand and rates Key comments on outlook of OSV market in CY2Q13 results. Generally positive although some (eg. Farstad and DOF ASA) are more cautious on near term supply glut of PSVs. OSV Owner/Operator Bumi Armada

Nam Cheong’s customer

Perdana Petroleum Nam Cheong’s customer

Tidewater Inc. (1QFY3/14 results) Nam Cheong’s customer

Key outlook statements and comments in latest quarterly results

Initiated “Steel On Water 2” OSV newbuild program • Continue to build on the platform of the original “Steel on Water” fleet expansion • Focus on adding higher specifications, “greener”, cleaner, safer and fuel efficient (GCSE) vessels • Enhanced services offering to the customers such as ROV, DSV, IMR or light installation services through MPSVs • Plans to grow current OSV fleet from 40+ to 80+ vessels in 5 years The Board is optimistic on the prospect for oil and gas support services in the domestic and regional markets, on the back of the stable oil prices range from USD85 – USD95 per barrel, upsurge in offshore activities, ongoing tender and bidding exercises and various development programmes spearheaded by our national oil company, PETRONAS with the support of major oil companies. With the improving marine charter outlook, our focus is to strive for longer-term charters for our new built assets. Offshore industry in early stage of multi year growth stage We firmly believe the offshore industry cycle is in the early stage of a multiyear growth phase, largely driven by the need for oil and gas companies to find and develop new hydrocarbon reserves and to grow production in order to meet future global energy demand. Demand for high-end support vessels ....the demands of our customers for more capable offshore drilling rigs that can work in more challenging operating environments will increase the need for larger, more reliable and technologically sophisticated support vessels such as the ones we have been adding to our fleet during the past few years. Capex plans/Fleet additions – continue to invest in its fleet We've been pretty aggressive over the last several years reinvesting in the fleet. And I think we will continue to pursue that as opportunities make themselves available. We certainly have the financial position.

Troms Offshore (Acquired by Tidewater)

Demand will be strong as delivery of new vessels gradually tails off With the current oil price level and the expected E&P investments in the years to come, Troms Offshore expects the market to develop positively for the next 12 months, as demand should continue to be strong while delivery of new vessels from Norwegian yards gradually tails off in 2014 and 2015.

Gulfmark Offshore

Tight utilisation and dayrates moving higher in North Sea , GoM and SEA In the North Sea, the spot market remains very tight for medium-size PSVs and the market is also very good for large PSVs. These fleet wide, spot day rate changes do not translate into similar improvements to average long-term day rates, but they are a good indication of the supply and demand balance in the North Sea. As we look forward to the third quarter, it’s a solid indication that the sudden softening we experienced last year in the third quarter will not repeat. The market in the U.S. Gulf of Mexico is even tighter. Day rates and utilization both moved up substantially during the quarter. Our expectation for the remainder of the year in the Gulf of Mexico looks just as good. We anticipate a continuation of the trend that we have seen thus far in 2013 have increasing average quarterly day rates of approximately 1,000 per day per quarter. Southeast Asia saw a substantial improvement in utilization and it even surpassed our expectations. Continuing its capex program As we go forward, we anticipate having a much lower cash position, as we continue our CapEx program, and begin drawing on our revolver’s......

DOF ASA

Brazil market picking up, demand for all types of vessels to increase The Brazilian OSV market is picking up after a slow 2012 with several contract awards. We expect the demand for all types of vessels to increase. North Sea – Demand for large AHTS to increase, but PSV demand still questionable AHTS - We expect the spot market for the remaining Q3 to be balanced, and more volatile in Q4. Based on expected increased rig activity in the North Sea we expect the demand for large AHTS to increase longer term. PSV - We expect the spot market to continue to be stable the next months, with a seasonal weakening towards the end of the year and the term activity to remain strong, but still question the long term market balance due to the large newbuild order book.

23 October 2013

Page 7 of 29

Nam Cheong Limited Farstad

Offshore activity level positive in most regions, but not yet sufficient to balance growth in supply The activity level offshore shows a positive trend in most regions. However, the increased activity is not sufficient to balance growth on the supply side. The growth in the PSV fleet is still expected to remain high in the future. West Africa, GoM, North Sea and Brazil markets developed positively, but overcapacity in Asia and Australia The activity in West Africa and in the Gulf of Mexico continues to develop positively, which is important for the further development of our key markets. The North Sea market has developed positively in the second quarter, but a continued improvement in the North Sea market is dependent upon a net departure of tonnage to other markets. The Brazilian market is now back in a positive trend, partly as a result of Petrobras again awarding contracts, as well as increased activity in the region from international oil companies. The markets in Asia and Australia are characterized by overcapacity of tonnage and continued pressure on rate levels. The contracting activity of new platform supply vessels (PSV) continues, and the number of vessel on order now account for approx. 40% of the existing fleet. Subsea market within expectations The subsea market appears to develop in line with expectations. The development will also in this segment depend on the oil price and what is happening on the supply side.

Siem Offshore

Current and near term North Sea market for AHTS vessels and PSVs •The number of AHTS > 15k bhp operating in the North Sea currently stabilizing at 50 vessels. •Seasonally increased term demand for AHTS > 15k bhp improving market balance by absorbing more spot tonnage. •Increased North Sea term demand for large PSVs Y/Y related to more production support and drilling support activity, positively influencing both fixture rates and utilisation. •Both high-end AHTS vessels and large PSVs under construction will enter the North Sea market next 12 to 18 months. •Activity and number of working rigs expected to increase based on firm contracts for new rigs entering the North Sea. Long term Global demand for OSCVs: •Based on an increasing number of subsea wells and installations the activity level is expected to be high. Long-term North Sea demand for AHTS vessels and PSVs: •Increased exploration, field development and number of fields on stream is expected to lead to further demand for both high-end AHTS vessels and PSVs. Long-term Global demand for AHTS vessels and PSVs: •Favorable outlook in Brazil based on firm contracts for Rigs, FPSOs and subsea projects. •Increasing demand in US GoM, West Africa and Oceania, especially on drilling support. •Prospects for harsh and/or remote areas (Barents Sea, Canada, US Alaska, Brazil).

Solstad Offshore

Increased demand for vessels, expects rate developments to be positive The company has registered increased demand for offshore vessels in all geographic areas where the company operates, and consequently higher rate levels and better utilization in the spot market for 2nd quarter of 2013. Market activity has improved and going forward we expect that the rate developments, in both spot and period marked will continue to evolve positive.

Source: Company results presentation, earnings call transcripts, outlook statements, Maybank KE

23 October 2013

Page 8 of 29

Nam Cheong Limited

The Right Model at the Right Time The BTS model is the best one to ride on the upswing in new orders

Right model to benefit from an OSV demand recovery cycle. Unlike most shipbuilders who build only upon receiving an order, about 80% of Nam Cheong’s vessels are built on a speculative basis. We believe that this BTS model is the right type of model to capitalise on the early stage of the turnaround in the OSV demand. In comparison to the BTO mode, the BTS model provides available vessels earlier to fill the immediate demand gap created. While Nam Cheong takes on the risk of this speculative building, it also benefits from the higher prices it can charge from providing a vessel earlier than a BTO model. Figure 11: Build-to-Stock model versus Build-to-Order model Revenue contribution Build based on Benefits to customers

Gross Margins Risk to Nam Cheong Track record

Build-to-Stock (BTS) ~80%

Build-to-Order (BTO) ~20%

Anticipated future demands - Lower performance risk from builder. - Shorter delivery lead time. - Increased marketing ability due to higher certainty of delivery date - Lower risk of buying vessels with outdated specifications due to the improved visibility of available charter contracts. - Greater chance of securing financing 15 – 20% No demand for BTS vessel

Firm order from customer Cost-plus price

Sold all BTS vessels prior to completion

Delivered all BTO vessels

5 – 10% Cancellation of orders

Source: Company, Maybank KE

An important edge against low-cost Chinese competition. In the wake of a rising number of China shipyards who can build standardised OSVs at lower cost, we believe that engaging in speculative building gives Nam Cheong a definite competitive edge over Chinese shipyards by providing value-add on commoditised vessels. Chinese yards cannot directly contract with Nam Cheong’s customers because many are state-owned and do not engage in speculative building. Outsourcing strategy offers flexibility. Nam Cheong outsources the construction of its BTS orders to 3 key PRC yards. The outsourcing strategy allows Nam Cheong to maintain an asset light structure which provides it with the flexibility to increase its scale of operations without capital investments. At the same time, this strategy mitigates the risk of over-capacity in situations of a fall in demand. The lower cost structure in China also allows Nam Cheong to offer competitive pricing to its customers. Nam Cheong deploys its personnel to the outsourced yards for supervision in order to ensure quality and manage execution timeliness. Payment terms to Chinese yards are also attractive, usually on a 30% upfront and 70% on delivery basis. Figure 12: BTS vessels are generally outsourced to Chinese yards. Fujian Southeast Shipyard Xiamen Shipbuilding Mawei Shipbuilding

Size (sqm) 180,000 500,000 280,000

Capability Small-mid sized AHTSs and PSVs AWBs and PSVs Mid-sized AHTSs and PSVs

Source: Company, Maybank KE

23 October 2013

Page 9 of 29

Nam Cheong Limited

Miri yard in Malaysia reserved for complex vessels. Nam Cheong owns a 126,000 sqm yard space in Malaysia which has the capacity to deliver up to 12 OSVs in a year. This yard is reserved for constructing BTO vessels and also for more complex and sophisticated vessels. It provides Nam Cheong the flexibility to maintain a BTO model. It recently secured firm orders from Bumi Armada for a batch of four 4,500 dwt MPSVs which would be delivered from the Miri yard. We understand that Bumi Armada holds an option for another 4 similar vessels. Such orders allow Nam Cheong to showcase its expertise in building more complex vessels and move up the value chain. Figure 13: Miri Yard in Malaysia reserved for complex and sophisticated BTO vessels Location Size Capacity

District of Kuala Baram Land, Miri, Sarawak, Malaysia 126,000 sqm, with 4 slipways Up to 12 vessels/year, up to 75m in length

Source: Company, Maybank KE

Spotting the right trend. The key success factor in the BTS model lies in the ability to spot the right trend and build in advance the kind of vessels that would be in demand. Nam Cheong has demonstrated its ability to get this right with a track record of selling all its BTS vessels before completion. Its strategy in achieving this lies in: (1) Close relationships with clients, allowing it to understand the type of vessels that they potentially need. (2) Rigorous gathering of intelligence from market players. (3) Building mass market and versatile vessels that would still be in demand regardless of market fluctuations. Payment terms. From the stage of vessel construction up till vessel launch, Nam Cheong will pay its outsourced China yards progressive payments of up to 30% of vessel price, and pay the remaining 70% on delivery. In turn, Nam Cheong collects 10-30% downpayment from its customers upon agreement of sale and the remaining on delivery. Therefore, the period when the vessel is under construction and unsold is typically financed by Nam Cheong. Nam Cheong usually sells its vessels about 6 months before vessel delivery date. Hence, it finances the building of the vessel for about 18 months.

23 October 2013

Page 10 of 29

Nam Cheong Limited

Supported by Strong Demand in Malaysia A natural advantage in its home market. The cabotage rules in Malaysia favour Malaysian-flagged vessels. In order to fulfill local content requirements, locally-constructed vessels have a natural advantage over foreign-constructed OSVs for players who seek to participate in the Malaysian offshore oil and gas projects. Local asset owners also tend to award shipbuilding contracts to domestic shipyards. As Malaysia’ largest OSV builder, along with its close ties with many domestic OSV asset owners, Nam Cheong has been, and is expected to continue to be, a strong beneficiary of the robust Malaysia oil and gas sector.

38

34

33

ABG

31

Dayang

27

Batamec

38

Fujian Mawei

Grade One

Source:Nam Cheong, Pareto, ODS Petrodata, various research houses

47

Coastal Contracts

6

53

Yuexin

6

67

Fujian Southeast

9

Berjaya

18

Sealink Engineering

Muhibbah

Coastal Contracs

20

Tuong Aik

38

73

Sinopacific

80 70 60 50 40 30 20 10 0

Vard

73

Nam Cheong

80 70 60 50 40 30 20 10 0

Figure 15: Top 10 Global OSV builders (2008 – May 2013) Nam Cheong has built the most number of vessels

Nam Cheong

Figure 14: Major Malaysian OSV builders (2008-May 2013) Nam Cheong is the largest domestic OSV builder

Source:Nam Cheong, Pareto, ODS Petrodata, various research houses

Under-spending in initial years by Petronas could see capex speed. Malaysia’s oil and gas sector is earmarked as one of the key sectors to support the country’s Economic Transformation Programme. Its national oil company, Petronas, intends to spend MYR300b (USD100b) over 5 years (2011 – 2015) in order to arrest the country’s declining hydrocarbon production. Yearly spending over the last two years of about MYR41-45b have been below average of MYR60b per year required to meet the MYR300b 5-year target. This implies that capex spending could accelerate over the next 3 years to play catch up. According to Petronas, spending would be skewed towards offshore E&P, which should benefit Nam Cheong. Figure 16: Petronas commits to spend MYR300b over 2011-2015 Spending in FY11 and FY12 has been below average budgeted, likely to spend more to play catch up MYR b 70 60 50

18.8

14.4

41.2

45.6

37.7

60.0

60.0

FY14

FY15

40 30 20 10 0

17.6

21.1

FY05

FY06

28.2

FY07

37.6

FY08

44.0

FY09

33.4

FY10

1H13 22.3 FY11

FY12

FY13

Source: Petronas, Maybank KE

23 October 2013

Page 11 of 29

Nam Cheong Limited

Key Malaysian O&G players such as Bumi Armada, Perdana Petroleum, Ico Offshore, Yinson Holdings and SapuraKencana are Nam Cheong’s customers

Strong relationships with Petronas-licensed OSV operators. Nam Cheong has established strong customer relationships with leading domestic OSV players given its deep-rooted history locally. Several of its key customers are licensed OSV operators for Petronas. These include Bumi Armada, Perdana Petroleum, Icon Offshore, Yinson Holdings and SapuraKencana. About two-thirds of its orders are from repeat customers, which shows the customer stickiness it has cultivated. Figure 17: List of customers Country Bumi Armada Malaysia Perdana Petroleum Malaysia Vroon B.V. Netherlands Topaz Energy Dubai Icon Offshore Malaysia Yinson Holdings Malaysia Syarikat Borcos Shiping Malaysia Gulf Glory Dubai Tidewater USA SapuraKencana Malaysia Garware Offshore Services India Intermarine Panama PACC Offshore Services Singapore PetroVietnam Vietnam Mermaid Marine Australia Australia Source: Company, Maybank KE

International OSV owners such as Topaz Energy and Tidwater are also Nam Cheong’s customers

No of vessels ordered from Nam Cheong since 2007 17 13 7 6 5 3 3 3 3 3 2 2 2 2 1

Type of vessels ordered AHTS, PSV AHTS, AWB/WB AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS, Work Boat AHTS AHTS AHTS AHTS PSV

But also spreading its wings globally. Nevertheless, Nam Cheong is making a strong effort to diversify its exposure out of the local market, and has made headways in securing several OSV owners such as Topaz Energy from Dubai and Tidewater from USA as its clients. More than a third of its revenue mix consists of international orders in 2012 as opposed to 100% domestic-based before 2005. Figure 18: Nam Cheong has expanded its customer client base to global players

Source: Company

23 October 2013

Page 12 of 29

Nam Cheong Limited

At least 3 more years of strong domestic demand

Few more years of strong domestic demand. We believe that Nam Cheong will see at least 3 more years of strong domestic demand in OSV newbuilds from Petronas’ capital spending. Judging from its aggressive ramp up in its 2014 newbuilding program, we believe that Nam Cheong has a high level of confidence in future demand. We expect its 2015 newbuild program (yet to be announced) to be at a similar level as 2014. The ability to nurture customer stickiness. We believe that Nam Cheong’s ability to cultivate customer loyalty is due to 3 key reasons: (1) It has established strong working relationships with many of the local players given its strong domestic dominance and therefore has a natural advantage over foreign shipbuilders. (2) By building vessels ahead of demand, Nam Cheong could provide customers with available vessels over a shorter lead time. This could at times prove critical in improving customers’ chance of securing contracts.

“Letter of Authorisation” helps customers secure contracts

23 October 2013

(3) Nam Cheong could offer ‘Letter of Authorisation’ to customers which back the latter in bidding for Petronas-related contracts. This “Letter of Authorisation basically allows the customer to exercise an option on Nam Cheong’s vessel-inconstruction but choose to walk away if it did not get the contract.

Page 13 of 29

Nam Cheong Limited

Stepped up Newbuild Program reflects confidence and fuels EPS growth Stepped up 2014 shipbuilding program. 2013 BTS shipbuilding program consists of a total of 19 speculative build vessels. To date, all except for one have been sold. 2014 building program consists of 28 vessels, a substantial step up, which reflects Nam Cheong’s expectation for a stronger demand in 2014 vis-à-vis 2013. Under the 2014 program, 16 vessels or 57% of the number vessels have already been sold. Note that Nam Cheong has a good mix of AHTS, PSVs and Accommodation Work Boats (AWB) in its program and these are key vessels which we foresee will have strong demand in the next few years. Strong vessel sales to fuel revenue growth. Vessel sales have shown a clear trend of strength since FY09, which justifies the step up in newbuild program. Its outstanding orderbook as at Aug 2013 consists of 22 vessels worth a total of MYR1.4b, out of which MYR1.2b remains unrecognised. It recently sold another four 3,200dwt PSVs at USD120m, bringing outstanding orderbook to about MYR1.7b. We expect 2015 newbuild program to be on a similar scale as 2014

We expect 2015 newbuild program to be just as high. 2015 newbuild program is yet to be announced but we expect it to be on a similar scale as 2014 newbuild program. We forecast the program to consist of about 28-30 vessels with a total value of USD560m – 600m. We further assume that Nam Cheong continues its track record of selling its vessels before construction is complete. Based on these assumptions, our net profit forecasts over FY14-15F are 6-24% above consensus.

Figure 19: Status of 2013 BTS building program – 19 vessels Only one vessel out of total of 19 vessels remains unsold 14

Unsold

12

Sold

10

Delivered

8

2

6

3

4

6

2 0

1

AHTS

4 PSV

0 3 AWB/WB

Figure 21: Historical and forecast vessel sales MYR m 2,000 Vessel Value (forecast) 1,800 Vessel Value 1,600 No. of vessels sold 1,400 1,200 1,000 800 1314 600 1031 400 769 757 505 200 192 0 FY07 FY08 FY09 FY10 FY11 FY12

30 25 810

952

20

1277

15 1336

10 5

YTD FY14F FY15F FY16F 2013

Source: Company, Maybank KE

Source: Company, Maybank KE

Figure 20: Status of 2014 BTS building program – 28 vessels 57% of the 28 vessels already sold

Figure 22: Nam Cheong’s revenue Lagged time between vessel sales and revenue

0

MYR m

14

Unsold

12

Sold

10 8

6

8

Delivered

6 4

2 5

2 0

1615

AHTS/ERV

Source: Company, Maybank KE

23 October 2013

4 PSV

3 AWB/WB

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

809 853 425

1,990

1,820 1,333

1,183 758

606

877

510

FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY!5F FY16F

Source: Company, Maybank KE

Page 14 of 29

Nam Cheong Limited Figure 23: Vessels delivered and to be delivered Stepped up in newbuilding program, 28 to be delivered in 2014 70

4 BTO vessels for Bumi Armada

60

4

50 40 22

30 20 10 0

28

28

FY14F

FY15F

19 14

13

13

FY10

FY11

FY12

10 6 FY07

FY08

FY09

FY13F

Source: Company, Maybank KE

Figure 24: Recent contracts secured Announced Date 29-Mar-12 22-Aug-12 03-Sep-12 10-Oct-12 12-Nov-12 27-Dec-12 28-Feb-13 27-Mar-13 23-Apr-13 13-May-13 23-Jul-13 30-Sep-13

Order type BTS BTS BTS BTS BTS BTS BTS BTS BTS BTS BTS BTS BTS BTO BTS BTS BTS BTS BTS BTS BTS BTS BTS

Vessel Type AHTS AHTS AHTS AHTS AHTS AWB PSV PSV AHTS AHTS AHTS PSV AHTS MPSV AHTS ERRV AWB AHTS PSV PSV PSV AWB PSV

Capacity 5150 bhp 5220 bhp 5150 bhp 5150 bhp 3000dwt 300 men 3000 dwt 5000 dwt 5150 bhp 5150 bhp 5150 bhp 5000 dwt 5150 bhp 5000 dwt 5150 bhp 5150 bhp 100 men 12,000 bhp 3000 dwt 3000 dwt 3000 dwt 300 men 3200 dwt

Qty 2 1 1 1 1 2 1 1 1 2 1 1 2 4 2 4 2 1 1 1 1 4

Customer Singaporean customer Norwegian-based Singaporean customer repeat Norwegian-based customer Middle East-based customer new customer based in West Africa Perdana Petroleum New West Africa customer New West Africa customer Customer based in Norway Singapore-based customer New customer in Indonesia new customer in Asia Pacific Icon Offshore Armada Offshore/Bumi Armada Icon Offshore Singapore-based company Perdana Petroleum New customer in Indonesia Leading oilfields services company in Asia Leading oilfield servcies company in Asia EDT Offshore Perdana Petroleum Emerging offshore marine service company in Latin America

Delivery date 2Q12 - 3Q12

Contract Value (USD m) 36.8

4Q12 - 1Q13

43.81

2Q13 1Q13

59 52.1

1Q13-4Q13

45.13

2Q13

56.4

2013 - 2015 2Q13 - 4Q14

130 72.1

1H14 2Q13 - 1Q14

59 110

1Q14-4Q14

70.5

2014

120

Source: Company, Maybank KE

Figure 25: Key assumptions and forecasts Key Assumptions & forecasts Key Assumptions & forecasts Shipbuilding Vessel Sales value (MYR m) No. of vessels sold Revenue Chartering Shipbuilding Total Revenue Gross Profit Chartering Shipbuilding Total Gross Profit Gross Margin Chartering Shipbuilding Total GPM Source: Company, Maybank KE

23 October 2013

FY07

FY08

FY09

FY10

FY11

FY12

FY13F

FY14F

FY15F

769 15

1031 16

192 4

505 10

757 13

1314 21

1,762 25

1,277 20

1,615 24

0 425 425

4 849 853

15 1,169 1,183

41 718 758

42 565 606

38 839 877

49 1,270 1,319

52 1,938 1,990

54 1,766 1,820

0 76 77

3 124 126

12 232 243

37 133 170

33 105 138

25 164 189

27 222 249

29 339 368

29 309 339

49.1% 18.0% 18.0%

67.7% 14.6% 14.8%

82.2% 19.8% 20.6%

90.9% 18.5% 22.4%

78.8% 18.6% 22.7%

66.9% 19.5% 21.5%

56.0% 17.4% 18.9%

55.0% 17.5% 18.5%

55.0% 17.5% 18.6%

Page 15 of 29

Nam Cheong Limited

Financials Lumpy shipbuilding revenue due to recognition method. For vessels under the BTS model, revenue recognition starts only upon confirmation of sale. No revenue is recognised when Nam Cheong starts building a vessel. When a sale is made, an initial sum will be recognised as revenue, based on the progress of the construction at that point. For example, if 30% of the cost of construction has already been incurred at the point of sale, 30% of the sale price would immediately be recognised. Recognition subsequently would follow a percentage of completion recognition method. For vessels under BTO, revenue is recognised based on a percentage of completion method right from the start. Therefore, quarter-to-quarter shipbuilding revenue is expected to be lumpy. Revenue for the chartering business would be less lumpy but this typically accounts for less than 5% of total revenue. Figure 26: Illustration of revenue recognition for BTS model Period

1

2

3

4

5

6

7

8

1%

5%

9%

15%

20%

30%

15%

5%

0%

0%

0%

30%

20%

30%

15%

5%

Construction Progress: % of cost incurred in vessel construction Revenue Recognition Progress: (assume vessel sold in Period 4) % of vessel sale price recognised

Vessel Sold at period 4. Lump sum revenue of based on % of cost incurred is immediately recognised. Progressive recognistion thereafter

Progressive recognition based on % of completion

Source: Company, Maybank KE

Strong vessel sales assumption to drive revenue growth. Revenue typically lags vessel sales profile by about 1-2 years. Revenue rebound in FY12 was a consequence of the upturn in vessel sales in FY10 (as shown in Figure 21). We forecast revenue to continue to expand at CAGR of 28% over FY13-15F. Our higher-than-consensus forecast is a result of our confidence in its 2015 program wherein we assume that this will be similar to 2014 levels and that it would be able to sell all its vessels before delivery. Note that in deriving our forecasts, we have to make assumptions on 2015 building program, timing of vessel sales and the progress of recognition. This could result in some variances on a quarterly basis but should be more consistent over a longer time periods. Figure 27: Nam Cheong’s historical and forecast revenue MYR m 2,000

1,989.8

1,800

25% 20%

1,600 1,400

1,319.0

1,183.3

1,200 852.8

1,000

15% 758.2

800 600

1,819.8

Figure 28: Profitability

15.7%

876.6 10%

606.2

425.3

5%

7.0%

200 0

FY07

FY08

FY09

FY10

Source: Company, Maybank KE

23 October 2013

FY11

FY12

FY13F

FY14F

FY15F

0%

FY07

15.6% 13.1%

11.4%

10.2%

400

15.4%

FY08

Gross Margin EBIT Margin FY09

FY10

12.7%

12.8%

EBITDA Margin Net Margin FY11

FY12

FY13F FY14F FY15F

Source: Company, Maybank KE

Page 16 of 29

Nam Cheong Limited

Superior shipbuilding gross margins. Nam Cheong has consistently produced higher shipbuilding margins than its peers due to its BTS model, which allows it to charge higher prices. Furthermore, we believe that its strong experience and execution track record also contributed to the better margins. Shipbuilding gross margins have typically been between 18-20% historically, but have come down marginally over the last 2 quarters to between 17-18%. We forecast shipbuilding gross margins to be sustained at about 17-18% over the next 3 years. Figure 29: Gross Margin comparison of OSV builders Nam Cheong has been able to deliver higher margins than peers Triyards ASL Marine (shipbuilding) Jaya Holdings* Otto Marine Vard Nam Cheong Source: Factset, Company, Maybank KE

FY08 n.a. n.a. 37.8% 24.3% 0.3% 14.8%

FY09 26.0% 9.8% 51.9% 16.0% 7.1% 20.6%

FY10 30.1% 8.4% 34.7% 11.9% 14.1% 22.4%

FY11 18.3% 8.2% 60.8% -26.5% 22.4% 22.7%

FY12 16.9% 10.6% 31.1% -46.6% 17.1% 21.5%

Figure 30: Historical cost breakdown disclosed by Nam Cheong Note that the increased outsourcing cost is mainly due to higher proportion of vessels that are being outsourced to PRC contractors. Gross margins also improved with more outsourcing FY07 Shipbuilding Revenue Miri Yard PRC Contractors Total Shipbuilding Revenue

124.2 300.8 425.0

Shipbuilding Cost Outsourcing cost 113.8 Raw materials & equipment 176.9 Sub-contracting costs 26.2 Production Overheads 28.9 Direct labour 2.8 Total Shipbuilding Cost 348.6 Shipbuilding Gross Margins 18.0% Source: Company, Maybank KE

FY08

%

FY09

%

9M10

%

%

29% 71% 100%

148.9 702.2 849.1

18% 97.5 83% 1,071.3 100% 1,168.8

8% 92% 100%

19.7 442.4 462.1

4% 96% 100%

33% 51% 8% 8% 1% 100%

235.6 399.2 41.6 45.8 3.3 725.5 14.6%

32% 55% 6% 6% 0% 100%

52% 41% 2% 4% 0% 100%

220.9 104.7 7.0 16.3 0.7 349.6 24.3%

63% 30% 2% 5% 0% 100%

490.6 381.5 22.0 39.1 4.2 937.3 19.8%

Chartering margins. Chartering margins have trended lower over the years as Nam Cheong shifts from bareboat charters to more time charters. The company views ~55% margin as a healthier and more sustainable level for the chartering business going forward. Chartering is, however, a small business segment which accounts for less than 5% of total revenue in FY12. Figure 31: Segmental gross margin trends and forecasts 100%

90.9%

90%

82.2% 67.7%

70%

50%

Shipbuilding gross margins

78.8%

80%

60%

Chartering gross margins Overall gross margins 66.9% 56.0%

49.1%

55.0%

55.0%

40% 30% 20% 10% 0%

18.0% 18.0% FY07

14.6% 14.8% FY08

19.8% 20.6% FY09

18.5% 22.4% FY10

18.6% 22.7% FY11

19.5% 21.5% FY12

17.4% 18.9% FY13F

17.5%

17.5%

18.5% FY14F

18.6% FY15F

Source: Company, Maybank KE

23 October 2013

Page 17 of 29

Nam Cheong Limited

Net margins trending lower due to higher interest cost. We forecast a decline in net margins from about 15-16% level between FY10-FY12 to the 12-13% level in the next few years as we expect higher interest cost from more borrowings to finance its speculative build program. Note that once a vessel is sold, the interest cost associated with the construction contracts would be capitalised in the cost of sales line. Balance sheet. Nam Cheong’s net gearing stood at 0.40x as at 1H13. However, it recently raised another SGD90m (MYR225m) through issuance of 5% notes due Aug 2017 by drawing down from the remainder of its SGD200m MTN program. Given the nature of its speculative build model, it would require higher levels of funding and working capital for the next 2 years. However, with the robust sector prospects, we believe that risks are relatively well-controlled. With strong cashflows expected in FY15F, Nam Cheong could pare down its debt to a net gearing level of 0.26x, based on our forecast. Figure 32: Nam Cheong’s net gearing We forecast net gearing to drop to 0.26x in FY15F 0.90 0.80

0.76

0.78

0.70

0.63 0.54

0.60 0.50

0.38

0.40

0.39 0.26

0.30 0.20 0.10 0.00

FY09

FY10

FY11

FY12

FY13F

FY14F

FY15F

Source: Company, Maybank KE

Long cash conversion cycle. Cash conversion cycle exceeds 100 days but this should not be surprising given the nature of its business where it engages in speculative building. Long inventory days is the main reason for the long cash conversion cycle. Figure 33: Efficiency FY09

FY10

FY11

FY12

FY13F

FY14F

FY15F

Inventory Days

57

167

171

172

182

174

220

Receivables Days

35

78

53

37

34

33

42

Payable Days

59

149

113

99

89

75

94

167

171

172

182

174

220

Cash Conversion Cycle 57 Source: Company, Maybank KE

Cashflows. Nam Cheong has been generating healthy cashflows but we expect that to weaken in FY13-14F due to increases in working capital requirements as the company steps up on its newbuilding program. Operating cashflow and free cashflow should swing back to the positive territory in FY15F.

23 October 2013

Page 18 of 29

Nam Cheong Limited Figure 34: Nam Cheong’s cashflows Negative FCF in FY13F and FY14F due to higher working capital requirements for its stepped up newbuilding program. Should swing back to positive FCF in FY15F. MYR m 400 300 200 100 0 (100)

FY10

FY11

FY12

FY13F

FY14F

FY15F

(200) (300) (400)

Operating CF

Investing CF

Financing CF

FCF

Source: Company, Maybank KE

Dividend payout can be stepped in FY14F. Dividend payout ratios were 10% (0.2 SG cts) and 18% (0.5 SG cts) for FY11 and FY12 respectively. We forecast a similar payout ratio of 20% (0.6 SG cts) in FY13F. However, we believe that with our expectations of record profits in FY14F, Nam Cheong could afford to increase its dividend payout. We forecast a payout ratio of 30% in FY14F and FY15F which translates to 1.4 SG cts/3.7 MYR sens (5.0% yield) and 1.3 SG cts/3.4 MYR sens (4.6% yield) respectively. While free-cashflow is expected to be negative in FY14F, we think that Nam Cheong could still sustain this payout given the positive swing in free-cashflow in FY15F and that the dividends declared in FY14F would only be paid out in FY15F cashflows. Dupont Analysis. ROE for Nam Cheong would stay near 23-25% for FY13-14F but we forecast it to dip in FY15F due to lower net margin (from higher interest cost) and lower financial leverage (Asset/Equity). The higher margins in FY10-FY12 were due to a confluence of factors such as higher chartering margins, marginally higher shipbuilding gross margins (~1-2 ppts higher) and lower interest expenses. Figure 35: Dupont Analysis Net Margin Total Asset Turnover ROA Financial Leverage

FY09

FY10

FY11

FY12

FY13F

FY14F

FY15F

11.4%

15.7%

15.4%

15.6%

13.1%

12.7%

12.8%

1.5

0.6

0.6

0.8

0.8

0.9

0.8

17.6%

9.4%

9.6%

12.0%

10.9%

12.0%

10.3%

2.8

2.6

2.2

2.1

2.1

2.1

1.9

24.8%

20.8%

25.6%

23.3%

25.3%

19.7%

ROE 50.0% Source: Company, Maybank KE

23 October 2013

Page 19 of 29

Nam Cheong Limited

Key Risks Cyclicality of the offshore oil and gas sector. Nam Cheong’s business is tied to the cyclicality of the offshore oil and gas sector. A sustained fall in oil price could affect the economics of offshore oil and gas projects and thereby affecting demand for OSVs. BTS orders cannot be sold. Nam Cheong builds vessels on a speculative basis without secured orders, anticipating that it can sell them later. In the event that it fails to find a buyer for its vessels, it may incur holding costs or may need to sell its vessels at less than favourable prices. Competition from other players. Nam Cheong faces competition from several shipbuilding players around the region. If its competitor engages in more aggressive actions such as offering lower price and better financing terms or are able to provide better execution with higher quality, it may be forced to reduce prices or lose market share. Cost overrun and delays. Nam Cheong also faces the risk of incurring higher than expected cost, which can arise from fluctuations in raw materials and equipment cost, higher labour cost, higher outsourcing cost, poor project management or underestimation of actual cost. Project delays or additional corrective measures needed due to poor execution could also affect its total cost.

23 October 2013

Page 20 of 29

Nam Cheong Limited

Company Profile Largest OSV builder in Malaysia. Nam Cheong was established in 1968 and was then engaged in the construction of barges and fishing vessels in Malaysia. It expanded its shipbuilding operations into the construction of OSVs over the years and is Malaysia’s largest OSV builder by revenue today. It was listed on the Mainboard of the Singapore Exchange through a reverse takeover of Eagle Brand Holdings Limited in May 2011. Its two key business segments are (1) Shipbuilding and (2) Vessel Chartering. Figure 36: Nam Cheong’s four decades of shipbuilding history

Source: Company

Figure 37: Nam Cheong Corporate Structure

Source: Company

Shipbuilding. Shipbuilding accounts for 96% of its total revenue in FY12. Nam Cheong owns a 12.6ha shipyard (Miri Shipyard) in Kuala Baram, Sarawak, Malaysia. The Miri yard could deliver up to 12 vessels a year. However, a large part of its shipbuilding activities under its Build-to-stock model is now outsourced to selected yards in China. It deploys its personnel to the China shipyards to monitor and oversee the outsourced vessels’ construction process.

23 October 2013

Page 21 of 29

Nam Cheong Limited

Vessel chartering. This business comes started only in 2007 and has historically contributed less than 10% to yearly revenue. Nam Cheong owns and operates a fleet of 13 vessels, comprising 10 SSVs, 2 landing crafts and one AHTS vessel. The vessels are chartered out both on a bareboat and time charter basis. Figure 38: Key Management Profiles Name Datuk Tiong Su Kouk

Position Executive Chairman

Roles & Reponsibilities/Profile Highlights Datuk Tiong has more than 20 years’ experience in the shipbuilding industry.He is responsible for the Group’s strategic direction and shipbuilding operations in its Miri yard and the PRC Contractors’ shipyards. Along with his extensive experience and involvement in the shipbuilding industry, he has built a wide network of Malaysian and foreign business contacts over the years. He also has played a significant role in steering the Group from being primarily involved in the construction of barges and fishing vessels in Malaysia to the building of Offshore Support Vessels, and transformed NCD into one of the leading builders and suppliers of OSVs in Malaysia. He is also the founder of CCK Consolidated Holdings Berhad (”CCK”), a company listed on the Main Market of Bursa Securities Malaysia Bhd. Under his stewardship, the CCK and its subsidiaries (the “CCK Group”) has progressed from a small family-run business to one of Sarawak’s largest integrated poultry producers and producers of frozen food. Datuk Tiong was conferred the Panglima Jasa Negara which carries the title “Datuk” by Seri Paduka Baginda Yang Di-Pertuan Agong on 2 June 2001. Datuk Tiong was also awarded the Pingat Bintang Sarawak by the head of the Sarawak state in 1987 and Johan Setia Mahkota by Seri Paduka Baginda YangDi-Pertuan Agong in 2000 for his contributions to the community. Datuk Tiong was the Member MAPEN II (Majlis Perundingan Ekonomi Negara Kedua) appointed in 1999. Datuk Tiong is also the Honorary Life President of the World Federation of Fuzhou Association, Permanent Honorary Chairman and Charter Chairman of The World Zhang Clan Association, Honorary Life Chairman of the Federation of Foochow Association of Malaysia and Honorary President of the Associated Chinese Chambers of Commerce and Industry of Sarawak. In addition, he sits on various school boards and boards of other private limited companies. Datuk Tiong is the father of Tiong Chiong Hiiung, our NonExecutive Director and the father-in-law of Leong Seng Keat, our Chief Executive Officer.

Mr Leong Seng Keat

Chief Executive Officer

Mr Leong Seng Keat graduated from the Chisholm Institute of Technology in 1990 with a Bachelor of Engineering degree, majoring in Electrical and Computing. Before joining the Group, he accumulated more than 15 years’ experience in the management of information technology, and is very well versed with the different phases of development and changes in the life of a corporation. In 2005, he joined the Group as an Executive Director and brought with him his vast experience in sales and management. He has successfully marketed the Group’s vessels to the international market and is at present overseeing the commercial development and the outsourcing of shipbuilding contracts to the Group’s PRC contractors. He has also been a member of the Regional Technical Committee of ABS since 2008 and a member of the Singapore Institute of Directors since 2011. He is the son-in-law of Datuk Tiong, our Executive Chairman and CEO, and the brother-in-law of Tiong Chiong Hiiung, our Non-Executive Director.

Mr David Ting Kah Soon

Chief Financial Officer

Mr David Ting joined the Group as the Financial Controller in January 2008 and assumed the role of Chief Financial Officer on 28 April 2011. He graduated with a Bachelor of Accountancy Degree from The University of South Australia. He is a member of the CPA Australia and the Malaysian Institute of Accountants. He has over 15 years of financial management and accounting experience, having worked in commercial and International CPA firms. He is responsible for the planning and management of the Group’s financial directives, fiscal and accounting policies.

Mr Tiong Chiong Soon (Joseph)

General Manager

Mr Joseph Tiong joined the Group as the General Manager in 2009. He graduated with a Bachelor of Business degree, majoring in management, from University of Oklahoma in the USA. Upon graduation, he started his career with the CCK Group, and is principally responsible for the purchasing function and retail division of the CCK Group. He maintains an excellent rapport with the suppliers thus ensuring timely delivery of products of the highest quality for the CCK Group. He was appointed an Executive Director of CCK in 1997 where he was involved in the overall management and operations of the CCK Group, and a director in SK Tiong Enterprise Sdn Bhd in 2001. He is primarily responsible to oversee and coordinate the shipbuilding operation in the Group’s Miri yard to ensure that operations run smoothly and according to the Group’s policies. He reports directly to the Executive Chairman and CEO of the Company.

Mr Mark Wai-yan Jason

Technical Manager

Mr Mark Wai-yan Jason joined the Group in 2007 as the Technical Manager of the Group. He graduated with Bachelor of Science (Hons.) majoring in Naval Architecture from the University of Strathclyde. Subsequently, he obtained the Chartered Engineer (UK) certification from the Institute of Charter Engineer (RINA) and the Professional Engineer certification from Professional Engineer Board (Singapore). He has an extensive experience in his area of responsibility, having served in Vosper Pte Ltd, Conan Wu and Associates, Neptune Orient Lines Ltd, Plimsoll Pte Ltd., Hong Lam Marine (as Project Manager/Naval Architect/Consultant), Sahaisant Co., Ltd in Thailand (as Project Manager) before setting up consultancy services from 2001 to 2004. He subsequently joined ASL ShipyardPte Ltd where he was their Senior Engineering Manager. He is primarily responsible for all technical-related matters of the Group.

Mr Lau Hing Tuang

Project Manager

Mr Lau Hing Tuang joined the Group in 2006 as the Project Manager. He graduated with a Master of Business Administration from Preston University in the United States of America. He has over 28 years of experience in ship repair and maintenance and project management. He started his career with Wan Usaha Trading as a supervisor. Thereafter, he joined Syarikat Wan Hussen as a senior supervisor before serving as a personnel & administrative executive in Slipways Sdn. Bhd., where he was later promoted to assistant yard manager. He oversees the construction of the Group’s vessels at the PRC Contractors’ shipyards and also monitors the construction process and coordinates the rectification of construction works. Further, he is involved in the PRC Contractors’ site administration and he communicates with both the Group’s customers and the PRC Contractors on shipbuilding related matters. He is also involved in the preparation of the Group’s vessels’ delivery process.

Source: Company

23 October 2013

Page 22 of 29

Nam Cheong Limited Figure 39: Key vessel types which Nam Cheong builds Type Anchor Handling Towing Supply Vessel (AHTS)

Platform Supply Vessel (PSV)

Picture

Functionality/Description • • • •

Assist rigs in laying anchors Tow/tug rigs to and within oilfields Makes supply runs from shore to oilfields. Nam Cheong builds 5,000 bhp to 12,000 bhp AHTS vessels.

• •

Dedicated supply vessel Equipped with four large liquid tanks (drilling mud, water, etc). Large deck space. Crew accommodations. Nam Cheong builds 3,000 dwt to 5,000 dwt PSVs.

• • •

Multi-purpose Support Vessel (MPSV)

Accommodation Work Barge (AWB)

Safety & Standby Vessel (SSV)

•

•

Provide a wide range of maintenance and supply functions. Large crew accommodation spaces Workboats are self-propelled with dynamic positioning capability Nam Cheong builds 200-man work boats

• • •

Floating hotels for offshore crew Equipped with cranes for maintenance work on platforms Nam Cheong builds 300-man AWBs

•

Provides emergency rescue and evacuation support for offshore facilities, platforms and rigs. Act as reserve radio station and provide on-scene coordination

• •

•

Source: Company

23 October 2013

Page 23 of 29

Nam Cheong Limited Figure 40: Deployment of oil services assets in each E&P phase

Source: Pareto, Company

Figure 40: Built-to-order shipbuilding process

Source: Company 23 October 2013

Page 24 of 29

Nam Cheong Limited PROFIT AND LOSS (MYR m) FYE Dec

CASH FLOW (MYR m) FY11

FY12

FY13F

FY14F

FY15F

Sales Cost of goods sold Gross Profit Administrative expenses Other Op. Inc/(exp) Operating Profit Net Interest Interest Income Interest Expense Net Investment income/(loss) Net other non-op. JV+Assc. Net extraordinaries Pretax profit Income taxes Minority Interest Net Profit EBITDA EPS (cents) Diluted EPS

606.2 (468.4) 137.8 (36.1) 3.0 104.7 (4.9) 0.1 (5.0) 0.0 0.0 0.0 101.3 (8.1) 0.0 93.2 111.2 4.9 4.9

876.6 (687.9) 188.7 (50.1) 5.0 143.5 (7.6) 0.2 (7.8) 0.0 0.0 0.0 138.6 (2.0) 0.0 136.6 150.3 7.1 7.1

1,319.0 1,989.8 (1,070.1) (1,622.0) 248.9 367.8 (64.6) (89.5) 13.2 9.9 197.4 288.2 (14.6) (17.7) 0.9 0.5 (15.5) (18.2) 0.0 0.0 0.0 0.0 0.0 0.0 185.3 273.0 (12.8) (20.3) 0.0 0.0 172.5 252.7 204.4 302.9 8.2 12.0 8.2 12.0

1,819.8 (1,481.2) 338.5 (81.9) 9.1 265.7 (15.8) 0.0 (15.8) 0.0 0.0 0.0 252.5 (18.7) 0.0 233.7 280.5 11.1 11.1

BALANCE SHEET (MYR m) FYE Dec

FY11

FY12

FY13F

FY14F

FY15F

Total Assets Current Assets Cash & ST investment Inventories Accounts receivable Others Non-current Assets LT investments Net PPE Others Total Liabilities Current Liabilities Accounts payable ST borrowings Others Long-term liabilities Long-term debts Others Shareholder's equity Paid-in capital Reserve Minority Interest

961.5 825.0 27.0 193.1 132.8 2.0 136.5 0.0 127.7 8.8 487.4 455.0 146.8 302.3 5.9 32.4 23.3 9.0 474.1 369.7 105.0 0.0

1,305.8 1,144.5 216.3 453.9 120.2 2.2 161.3 0.1 152.7 8.5 713.6 413.0 257.2 155.4 0.4 300.6 287.1 9.1 592.2 369.7 223.2 0.0

1,870.6 1,537.0 322.9 615.7 184.1 18.6 333.6 0.0 325.2 8.4 979.7 431.6 297.8 133.4 0.4 548.0 533.8 9.9 889.6 488.3 483.7 1.3

2,336.7 2,000.3 173.9 933.2 277.8 18.6 336.4 2.5 325.5 8.3 1,225.2 656.2 433.8 221.9 0.4 569.0 554.8 9.9 1,109.5 488.3 703.6 2.0

2,189.0 1,849.9 179.2 852.2 254.0 18.6 339.1 5.0 325.9 8.2 920.5 589.6 399.1 190.0 0.4 330.9 316.7 9.9 1,266.7 488.3 860.8 1.8

FYE Dec

FY11

FY12

FY13F

FY14F

FY15F

Operating cash flow Net Profit Depreciation & Amortisation Change in Working Capital Others Investment cash flow Net Capex Net Investments Change in other assets Financing cash flow Change in share capital Dividends paid Net change in debt Change in other LT liab. Net cash flow Free cash flow

37.5 93.2 6.4 (50.1) (12.0) (6.7) (6.7) (0.1) 0.1 (54.8) 0.0 0.0 (58.7) 3.9 (24.0) 30.8

75.8 136.6 6.8 (63.3) (4.3) (10.1) (6.3) (4.0) 0.2 122.7 0.0 (9.4) 131.9 0.2 188.4 69.5

(28.1) 172.5 7.0 (228.9) 5.8 (86.5) (86.5) 0.0 0.0 221.3 37.0 (24.9) 224.7 (15.5) 106.7 (114.6)

(192.5) 252.7 14.7 (476.3) (1.8) (15.0) (15.0) 0.0 0.0 58.5 0.0 (32.8) 109.4 (18.2) (149.1) (207.5)

382.6 233.7 14.7 121.0 (2.7) (15.0) (15.0) 0.0 0.0 (362.3) 0.0 (76.6) (270.0) (15.8) 5.3 367.6

KEY RATIOS FYE Dec

FY11

FY12

FY13F

FY14F

FY15F

(20.0) (19.0) (17.9) (22.0) (22.0)

44.6 37.0 35.2 46.6 46.6

50.5 37.5 36.0 26.3 14.9

50.9 46.0 48.2 46.5 46.5

(8.5) (7.8) (7.4) (7.5) (7.5)

22.7 17.3 18.3 15.4 9.6 20.8

21.5 16.4 17.1 15.6 12.0 25.6

18.9 15.0 15.5 13.1 10.9 23.3

18.5 14.5 15.2 12.7 12.0 25.3

18.6 14.6 15.4 12.8 10.3 19.7

0.7 0.6 21.1 0.3 7.6 0.1 1.8 1.4 298.6

0.7 0.4 18.4 0.9 9.7 0.5 2.8 1.7 226.3

0.8 0.4 12.8 1.3 (1.8) (0.2) 3.6 2.1 344.3

0.7 0.5 15.9 1.2 (10.6) (0.8) 3.0 1.6 602.8

0.4 0.3 16.8 1.3 24.3 1.9 3.1 1.7 327.5

4.9 4.9 2.0 24.8 31.7 5.8 0.2 0.5

7.1 7.1 4.0 31.0 45.8 7.9 0.5 1.3

8.2 8.2 (1.3) 42.3 62.7 9.7 0.6 1.6

12.0 12.0 (9.2) 52.8 94.6 14.4 1.4 3.7

11.1 11.1 18.2 60.2 86.5 13.3 1.3 3.4

Growth (% YoY) Sales EBIT EBITDA Net profit EPS Profitability (%) Gross Margin EBIT Margin EBITDA Margin Net Margin ROA ROE Stability Total Debt/Equity (X) Net Debt/Equity (X) Int. coverage (X) Int. & ST debt coverage (X) Cashflow int. coverage (X) Cashflow int. & ST debt (X) Current Ratio (X) Quick Ratio (X) Net debt (-ve is cash) Per share data MYR sens) EPS Diluted EPS CFPS BVPS SPS EBITDA/Share DPS (SG cts) DPS (MYR sens)

Source: Company, Maybank KE

23 October 2013

Page 25 of 29

Nam Cheong Limited

RESEARCH OFFICES REGIONAL WONG Chew Hann, CA Regional Head, Institutional Research (603) 2297 8686 [email protected] Alexander GARTHOFF Institutional Product Manager (852) 2268 0638 [email protected] ONG Seng Yeow Regional Head, Retail Research (65) 6432 1453 [email protected]

MALAYSIA WONG CHEW HANN, CA Head of Research (603) 2297 8686 [email protected]  Strategy DESMOND CH’NG, ACA (603) 2297 8680 [email protected]  Banking & Finance LIAW THONG JUNG (603) 2297 8688 [email protected]  Oil & Gas – Regional  Shipping ONG CHEE TING, CA (603) 2297 8678 [email protected]  Plantations – Regional MOHSHIN AZIZ (603) 2297 8692 [email protected]  Aviation – Regional  Petrochem YIN SHAO YANG, CPA (603) 2297 8916 [email protected]  Gaming – Regional  Media TAN CHI WEI, CFA (603) 2297 8690 [email protected]  Power  Telcos WONG WEI SUM, CFA (603) 2297 8679 [email protected]  Property & REITs LEE YEN LING (603) 2297 8691 [email protected]  Building Materials  Glove producers CHAI LI SHIN (603) 2297 8684 [email protected]  Plantation  Construction & Infrastructure KANG CHUN EE (603) 2297 8675 [email protected]  Consumer IVAN YAP (603) 2297 8612 [email protected]  Automotive LEE Cheng Hooi, Regional Chartist (603) 2297 8694 [email protected] Tee Sze Chiah, Head of Retail Research (603) 2297 6858 [email protected]

HONG KONG / CHINA Howard WONG Head of Research (852) 2268 0648 [email protected]  Oil & Gas - Regional Alexander LATZER (852) 2268 0647 [email protected]  Metals & Mining - Regional Jacqueline KO, CFA (852) 2268 0633 [email protected]  Consumer Terence LOK (852) 2268 0630 [email protected]  Consumer Jeremy TAN (852) 2268 0635 [email protected]  Gaming Karen KWAN (852) 2268 0640 [email protected]  HK & China Property Philip TSE (852) 2268 0643 [email protected]  HK & China Property Simon QIAN (852) 2268 0634 [email protected]  Telecom & Internet Steven CHAN (852) 2268 0645 [email protected]  Banking & Financials Warren LAU (852) 2268 0644 [email protected]  Technology – Regional

INDIA Jigar SHAH Head of Research (91) 22 6623 2601 [email protected]  Oil & Gas  Automobile  Cement Anubhav GUPTA (91) 22 6623 2605 [email protected]  Metal & Mining  Capital goods  Property Urmil SHAH (91) 22 6623 2606 [email protected]  Technology  Media

23 October 2013

ECONOMICS Suhaimi ILIAS Chief Economist  Singapore | Malaysia (603) 2297 8682 [email protected]

JUNIMAN Chief Economist, BII  Indonesia (62) 21 29228888 ext 29682 [email protected]

Luz LORENZO  Philippines (63) 2 849 8836 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII  Indonesia (62) 21 29228888 ext 29695 [email protected]

Tim LEELAHAPHAN  Thailand (662) 658 1420 [email protected]

SINGAPORE Gregory YAP Head of Research (65) 6432 1450 [email protected]  Technology & Manufacturing  Telcos Wilson LIEW (65) 6432 1454 [email protected]  Property Developers James KOH (65) 6432 1431 [email protected]  Consumer - Regional YEAK Chee Keong, CFA (65) 6432 1460 [email protected]  Offshore & Marine Alison FOK (65) 6432 1447 [email protected]  Small & Mid Caps  Construction ONG Kian Lin (65) 6432 1470 [email protected]  S-REITs Wei Bin (65) 6432 1455 [email protected]  Commodity  Logistics  S-chips Derrick HENG (65) 6432 1446 [email protected]  Transport (Land, Shipping & Aviation) John CHEONG (65) 6432 1461 [email protected]  Small & Mid Caps  Healthcare

INDONESIA Lucky ARIESANDI, CFA (62) 21 2557 1127 [email protected]  Base metals  Mining  Oil & Gas  Wholesale Pandu ANUGRAH (62) 21 2557 1137 [email protected]  Automotive  Heavy equipment  Plantation  Toll road Rahmi MARINA (62) 21 2557 1128 [email protected]  Banking  Multifinance Adi N. WICAKSONO (62) 21 2557 1128 [email protected]  Generalist Anthony YUNUS (62) 21 2557 1139 [email protected]  Cement  Infrastructure  Property

PHILIPPINES Luz LORENZO Head of Research (63) 2 849 8836 [email protected]  Strategy Laura DY-LIACCO (63) 2 849 8840 [email protected]  Utilities  Conglomerates  Telcos Lovell SARREAL (63) 2 849 8841 [email protected]  Consumer  Media  Cement Luz LORENZO (63) 2 849 8836 [email protected]  Conglomerates  Property  Ports/ Logistics  Gaming Katherine TAN (63) 2 849 8843 [email protected]  Banks  Construction Ramon ADVIENTO (63) 2 849 8845 [email protected]  Mining

THAILAND Sukit UDOMSIRIKUL Head of Research (66) 2658 6300 ext 5090 [email protected] Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected]  Consumer/ Big Caps Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected]  Strategy Padon Vannarat (66) 2658 6300 ext 1450 [email protected]  Strategy Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected]  Auto  Conmat  Contractor  Steel Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected]  Media  Commerce Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected]  Energy  Petrochem Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected]  Property Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected]  Banking & Finance Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected]  Transportation  Small cap. Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected]  Electronics

VIETNAM Nguyen Thi Ngan Tuyen (84) 844 55 58 88 x 8081 [email protected]  Food and Beverage  Oil and Gas Hang Vu (84) 844 55 58 88 x 8087 [email protected]  Banking Trinh Thi Ngoc Diep (84) 844 55 58 88 x 8242 [email protected]  Technology  Utilities  Construction Dang Thi Kim Thoa (84) 844 55 58 88 x 8083 [email protected]  Consumer Nguyen Trung Hoa (84) 844 55 58 88 x 8088 [email protected]  Steel  Sugar  Resources

Page 26 of 29

Nam Cheong Limited APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result. Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect. US This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

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Nam Cheong Limited DISCLOSURES Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Singapore: As of 23 October 2013, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report. Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report. Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. As of 23 October 2013, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report. MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Ong Seng Yeow | Executive Director, Maybank Kim Eng Research

Definition of Ratings Maybank Kim Eng Research uses the following rating system: BUY

Return is expected to be above 10% in the next 12 months (excluding dividends)

HOLD

Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)

SELL

Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure BV = Book Value CAGR = Compounded Annual Growth Rate Capex = Capital Expenditure CY = Calendar Year DCF = Discounted Cashflow DPS = Dividend Per Share EBIT = Earnings Before Interest And Tax EBITDA = EBIT, Depreciation And Amortisation EPS = Earnings Per Share EV = Enterprise Value

23 October 2013

FCF = Free Cashflow FV = Fair Value FY = Financial Year FYE = Financial Year End MoM = Month-On-Month NAV = Net Asset Value NTA = Net Tangible Asset P = Price P.A. = Per Annum PAT = Profit After Tax PBT = Profit Before Tax

PE = Price Earnings PEG = PE Ratio To Growth PER = PE Ratio QoQ = Quarter-On-Quarter ROA = Return On Asset ROE = Return On Equity ROSF = Return On Shareholders’ Funds WACC = Weighted Average Cost Of Capital YoY = Year-On-Year YTD = Year-To-Date

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Nam Cheong Limited

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Malaysia

Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

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Singapore

Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989

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Hong Kong

Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong

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Tel: (852) 2268 0800 Fax: (852) 2877 0104

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Philippines

Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200

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Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

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South Asia Sales Trading

Kevin FOY [email protected] Tel: (65) 6336-5157 US Toll Free: 1-866-406-7447

Thailand

Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

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Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill London EC3R 8HY, UK

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Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

Tel: (65) 6336 9090 Fax: (65) 6339 6003

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London

Indonesia

PT Maybank Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia

Vietnam

In association with

Maybank Kim Eng Securities JSC 1st Floor, 255 Tran Hung Dao St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 838 38 66 39

Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

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India

Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

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New York

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Saudi Arabia In association with

Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

North Asia Sales Trading

Alex Tsun [email protected] Tel: (852) 2268 0228 US Toll Free: 1 877 837 7635

www.maybank-ke.com | www.maybank-keresearch.com

23 October 2013

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