Company Update, 23 June 2014
Nam Cheong (NCL SP)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services Market Cap: USD646m
Target Price: Price:
SGD0.53 SGD0.39 Macro Risks
USD84m Win To Finish 2Q14
Growth Value
Nam Cheong (NCL SP) Price Close
Relative to Straits Times Index (RHS)
0.40
149
0.38
143
0.36
137
0.34
131
0.32
125
0.30
119
0.28
113
0.26
107
0.24
101
0.22
95
0.20 70
89
60
40
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Vol m
30 10
Source: Bloomberg
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%)
1.93m/1.54m -2.6 35.1 0.26 - 0.39 42 2,098
SK Tiong Enterprise SB Hung Yung Enterprise SB Su Kouk Tiong
27.3 15.2 7.8
Share Performance (%)
Moving up the value chain. The two units sold today are 500-man AWBs, which are much larger than the typical 300-man units Nam Cheong builds to stock. The sale value/unit is USD42m, compared to c.USD30m for the 300-man units. The two options expire within six months and, if exercised, could double this order to USD168m. The two units are scheduled for delivery in 1Q/2Q16. Orderbook now stands at MYR1.5bn. These wins raise Nam Cheong’s orderbook to MYR1.5bn on a gross basis. We estimate the net orderbook at MYR1.4bn before 2Q14 recognitions. Global offshore support vessel (OSV)-to-rig ratio falling, implying tight supply. The global OSV-to-rig ratio, excluding aged OSVs, stands at 3.3x, well below the 4.0x considered balanced by the industry. Taking the OSV and drilling rig orderbooks into consideration, this ratio falls further to 3.2x, indicating tighter OSV supply ahead. Nam Cheong’s revenue visibility has grown in recent years, as owners have ordered well ahead of deliveries. Their confidence has been supported by rising charter rates and overall utilisation levels. Recent BTO contracts from Bumi Armada (BAB MK, BUY, FV: MYR4.54), Sentinel Marine and now Perdana Petroleum (PETR MK, BUY, FV: MYR2.20) also reinforce this view. Maintain BUY with a raised SGD0.53 TP (from SGD0.52). We raise our FY15/FY16 earnings estimates by 5% each, as these orders are incremental to our shipbuilding programme assumptions. We raise our TP to SGD0.53 based on 10x blended FY14F/15F P/Es. Maintain BUY. Nam Cheong is one of our Top Picks in the offshore and marine sector. We further note that consensus estimates imply almost zero growth between FY15 and FY16, ie there is upgrade potential should Nam Cheong exceed street expectations.
YTD
1m
3m
6m
12m
Absolute
22.2
4.1
22.2
32.8
45.3
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Relative
19.3
4.3
15.6
27.5
41.3
Total turnover (MYRm)
877
1,257
1,771
2,382
2,747
Reported net profit (MYRm)
137
206
267
331
373
Recurring net profit (MYRm)
137
193
267
331
373
Recurring net profit growth (%)
46.6
41.6
37.9
24.3
12.5
Recurring EPS (MYR)
0.07
0.09
0.13
0.16
0.18
DPS (MYR)
0.01
0.03
0.03
0.04
0.05
Recurring P/E (x)
13.9
10.7
7.8
6.3
5.6
P/B (x)
3.21
2.23
1.82
1.48
1.23
P/CF (x)
25.8
Shariah compliant
Lee Yue Jer, CFA +65 6232 3898
[email protected]
13.3
12.9
1.3
2.6
3.2
4.0
5.4
EV/EBITDA (x)
14.8
12.1
9.0
7.1
6.2
Return on average equity (%)
25.6
26.9
25.5
25.8
23.9
Net debt to equity (%)
39.4
52.1
51.8
37.9
28.6
10.6
20.5
49.7
Dividend Yield (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
2 . 2 0 . 3
0 0 . 3 0 0 Nam Cheong has won contracts for two 500-man accommodation work . 0 barges (AWBs) worth USD84m, bringing its orderbook to MYR1.5bn. 0 The AWBs, plus two options, were sold to Perdana Petroleum. These 0 units are build-to-order (BTO), being incremental to Nam Cheong’s shipbuilding programme. We raise our FY15/16 earnings estimates by 5% each, keep our BUY call and raise TP to SGD0.53 (from SGD0.52).
50
20
Source: Company data, OSK-DMG estimates
na
na
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1
Nam Cheong (NCL SP) 23 June 2014
Additional Notes Figure 1: S-Curve revenue recognition model for Nam Cheong’s shipbuilding programme 1/3 ID
Delivery Status by year
Price (USD'000)
2013
1301 1302 1303 1304 1305 1306 1307 1308 1309 1310 1311 1312 1313 1314 1315 1316 1317 1318 1319 1320
2013 AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS PSV PSV PSV PSV PSV PSV PSV PSV AWB AWB AWB AWB
Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered Delivered
32,000 11,900 11,283 11,500 11,500 11,283 12,500 12,500 20,000 19,500 19,500 20,010 30,000 33,400 32,100 19,500 29,500 29,500 29,500 27,800
32,000
1401 1402 1403 1404 1405 1406 1407 1408 1409 1410 1411 1412 1413 1414 1415 1416 1417 1418 1419 1420 1421 1422 1423 1424 1425 1426 1427 1428 1429 1430
2014 AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS PSV PSV PSV PSV PSV PSV PSV PSV PSV PSV AWB AWB MWV MWV MWV MWV ERRV ERRV ERRV AHTS AHTS AHTS
Order Book Order Book Order Book Stock Stock Stock Stock Stock Order Book Order Book Order Book Order Book Order Book Order Book Order Book Order Book Stock Stock Order Book Order Book Order Book Stock Stock Stock Order Book Order Book Order Book BNI Order BNI Order BNI Order
11,283 11,283 11,300 11,200 12,000 12,000 12,000 12,000 31,800 19,500 20,500 20,500 30,000 30,000 30,000 30,000 30,000 32,000 29,500 29,500 29,000 28,000 28,000 28,000 11,775 11,775 11,775 6,120 6,120 6,120
8,703 2,933
2014F
2015F
2016F
8,349 9,200 9,775 8,349 12,500 12,500 4,000 19,500 19,500 16,808 3,340 963 15,588 12,173 19,175 19,175
14,550 15,450 15,450 24,000 7,800 6,000 4,500
26,550 16,225 24,650
2,355 1,766 1,766 5,508 1,224 1,224
1,950 2,065
2,128 8,349 11,300 11,200 12,000 12,000 12,000 12,000 31,800 4,950 5,050 5,050 6,000 22,200 24,000 25,500 30,000 32,000 2,950 13,275 4,350 28,000 28,000 28,000 9,420 10,009 10,009 612 4,896 4,896
Source: OSK-DMG estimates
See important disclosures at the end of this report
2
Nam Cheong (NCL SP) 23 June 2014 Figure 2: S-Curve revenue recognition model for Nam Cheong’s shipbuilding programme 2/3 ID
1501 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511 1512 1513 1514 1515 1516 1517 1518 1519 1520 1521 1522 1523 1524 1525 1526 1527 1528 1529 1530 1531 1532 1533 1534 1535
Delivery Status by year 2015 AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS PSV PSV PSV PSV PSV PSV PSV PSV PSV PSV WB WB WB WB AWB ERRV ERRV ERRV
Stock Stock Stock Stock Stock Stock Stock Stock Order Book Order Book Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Build to Order Build to Order Stock Stock Stock Stock Stock Stock Stock Order Book Build to Order Build to Order
Price (USD'000)
13,000 13,000 13,000 13,000 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 21,000 21,000 21,000 21,000 30,000 30,000 32,500 32,500 30,000 30,000 30,000 30,000 30,000 30,000 30,000 13,500 13,500 13,500
2013
2014F
3,380 2,600
11,600 2,320
7,500 3,300
1,200
20,400 22,200 3,600 2,700 25,800
2,025 2,025
2015F
2016F
13,000 9,620 10,400 13,000 14,500 2,900 12,180 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 21,000 21,000 21,000 21,000 30,000 30,000 32,500 32,500 2,100 4,500 26,400 27,300 3,000 30,000 30,000 13,500 11,475 11,475
Source: OSK-DMG estimates
See important disclosures at the end of this report
3
Nam Cheong (NCL SP) 23 June 2014 Figure 3: S-Curve revenue recognition model for Nam Cheong’s shipbuilding programme 3/3 ID
1601 1602 1603 1604 1605 1606 1607 1608 1609 1610 1611 1612 1613 1614 1615 1616 1617 1618 1619 1620 1621 1622 1623 1624 1625 1626 1627 1628 1629 1630 1631 1632 1633 1634 1635 1636 1637
Delivery Status by year 2016 AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS AHTS PSV PSV PSV PSV PSV PSV PSV PSV PSV PSV AWB AWB AWB AWB AWB MWV MWV MWV AHTS ERRV ERRV ERRV AWB AWB
Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock Build to Order Build to Order Stock Stock Stock Stock Stock Stock Stock Stock Stock BNI Stock Build to Order Build to Order Build to Order Build to Order Build to Order
Price (USD'000)
2013
12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 31,000 31,000 20,000 20,000 30,000 30,000 30,000 30,000 30,000 32,500 32,500 32,000 29,500 29,500 29,500 29,500 29,500 28,000 28,000 28,000 5,712 13,500 13,500 13,500 42,000 42,000
2014F
2015F
2016F
10,800 3,120
540 540 2,520 1,260
11,610 11,610 31,080 5,460
1,200 8,880 12,000 12,000 8,880 2,400 10,080 10,080 12,000 12,000 12,000 31,000 31,000 16,800 16,800 30,000 30,000 30,000 30,000 2,100 32,500 32,500 32,000 24,780 24,780 25,960 29,500 29,500 23,520 24,640 25,480 5,712 13,500 1,350 1,350 8,400 35,280
3,120 9,600 1,920 1,920
3,200 3,200
27,900
4,720 4,720 3,540
4,480 3,360 2,520
Model Revenue (USD'000)
2013 415,550
2014F 519,469
2015F 737,230
2016F 853,896
USD-MYR
2.99
3.30
3.30
3.30
Model Revenue (MYR'000)
1,241,229
1,714,247
2,432,859
2,817,857
Source: OSK-DMG estimates
See important disclosures at the end of this report
4
Nam Cheong (NCL SP) 23 June 2014
Financial Exhibits Profit & Loss (MYRm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
877
1,257
1,771
2,382
2,747
Cost of sales
(688)
(993)
(1,407)
(1,925)
(2,239)
Gross profit
189
264
364
457
508
Gen & admin expenses
(50)
(66)
(81)
(101)
(111)
Operating profit
139
199
283
356
397
Operating EBITDA
144
212
299
373
416
(13)
(15)
(17)
(18)
139
199
283
356
397
Net income from investments
3
3
2
6
6
Other recurring income
5
9
9
9
9
(8)
(11)
(18)
(28)
(26)
Depreciation of fixed assets Operating EBIT
(6)
Interest expense Exceptional income - net
-
Pre-tax profit
139
Taxation
13 (2)
212
Dec-16F
-
-
-
277
344
386 (12)
(6)
(8)
(10)
(1)
(2)
(2)
Minority interests
-
Profit after tax & minorities
137
206
267
331
373
(2)
Reported net profit
137
206
267
331
373
Recurring net profit
137
193
267
331
373
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
139
199
283
356
397
6
13
15
17
18
(60)
(419)
(292)
(193)
(232)
Source: Company data, OSK-DMG estimates
Cash flow (MYRm) Operating profit Depreciation & amortisation Change in working capital Other operating cash flow
10
10
11
15
15
Operating cash flow
95
(197)
18
195
199 (26)
Interest paid
(17)
(34)
(18)
(28)
Tax paid
(5)
(0)
(8)
(10)
(12)
Cash flow from operations
74
(231)
(8)
157
162
Capex
2
(36)
(45)
(30)
(31)
Other investing cash flow
(8)
(81)
-
-
-
Cash flow from investing activities
(6)
(117)
(45)
(30)
(31)
Dividends paid
(9)
(26)
(55)
(67)
(83)
-
-
Proceeds from issue of shares
-
119
Increase in debt
145
401
Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated
(4)
(1)
50 -
50 -
493
27
216
362
304
414
199
145
(58)
110
(103)
(12)
Implied cash at end of period
215
5 366
(17)
-
132
Forex effects
(5)
(150) (233)
-
-
-
304
414
312
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
5
Nam Cheong (NCL SP) 23 June 2014
Financial Exhibits Balance Sheet (MYRm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total cash and equivalents
216
362
304
414
312
Inventories
454
751
964
1,055
1,227
Accounts receivable
452
635
873
1,174
1,354
Other current assets
29
51
51
51
51
Total current assets
1,151
1,799
2,192
2,694
2,944
Tangible fixed assets
145
290
320
333
346
17
90
90
90
90
161
380
410
423
435
Total other assets Total non-current assets Total assets
Dec-16F
1,313
2,179
2,602
3,117
3,379
Short-term debt
155
242
292
342
192
Accounts payable
257
381
540
738
859
0
5
5
5
5
Total current liabilities
413
628
837
1,086
1,056
Total long-term debt
294
609
609
609
609
13
4
4
4
4
Total non-current liabilities
307
613
613
613
613
Total liabilities
720
1,241
1,450
1,698
1,669
Share capital
370
488
488
488
488
Retained earnings reserve
231
411
623
887
1,177
Other current liabilities
Other liabilities
Other reserves
(9)
39
39
39
39
938
1,150
1,414
1,704
-
1
3
5
7
-
0
0
0
0
592
939
1,153
1,419
1,710
1,313
2,179
2,602
3,117
3,379
Shareholders' equity
592
Minority interests Other equity Total equity Total liabilities & equity Source: Company data, OSK-DMG estimates
Key Ratios (MYR)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
44.6
43.5
40.9
34.5
15.3
Operating profit growth (%)
36.7
43.5
42.5
25.7
11.5
Net profit growth (%)
46.6
50.5
29.7
24.3
12.5
EPS growth (%)
46.6
37.7
28.9
24.3
12.5
Bv per share growth (%)
24.9
44.1
22.6
23.0
20.5
Operating margin (%)
15.8
15.8
16.0
15.0
14.5
Net profit margin (%)
15.6
16.4
15.1
13.9
13.6
Return on average assets (%)
12.0
11.8
11.2
11.6
11.5
Return on average equity (%)
25.6
26.9
25.5
25.8
23.9
Net debt to equity (%)
39.4
52.1
51.8
37.9
28.6
DPS
0.01
0.03
0.03
0.04
0.05
Recurrent cash flow per share
0.04
(0.11)
(0.00)
0.07
0.08
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
6
Nam Cheong (NCL SP) 23 June 2014
SWOT Analysis The world’s largest offshore supply vessel (OSV) builder by vessels delivered
New competition from China’s merchant vessel builders
Partnerships with yards make for an asset-light and capacity-flexible model, helping it to weather lean times The “letter of authorisation” system in Malaysia protects Nam Cheong’s key market
Asean countries are rapidly boosting exploration and production (E&P) capex The industry is currently in a major upswing due to massive rig orders
The company’s build-to-stock model is deemed risky by investors, although this is mitigated by its record orders on hand, asset-light strategy and dominant industry position in Malaysia
P/E (x) vs EPS growth
P/BV (x) vs ROAE
22%
10
8%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG estimates
Jan-16
Jan-15
Jan-14
Jan-13
0
-6%
Jan-12
5
-20%
23.3%
3.0
20.0%
2.5
16.7%
2.0
13.3%
1.5
10.0%
1.0
6.7%
0.5
3.3%
0.0
0.0%
P/B (x) (lhs)
Jan-16
15
26.7%
3.5
Jan-15
36%
30.0%
4.0
Jan-14
20
4.5
Jan-13
50%
Jan-12
25
Return on average equity (rhs)
Source: Company data, OSK-DMG estimates
Company Profile Nam Cheong (NCL) is the largest offshore support vessel (OSV) builder in the world with a 12% share of the global shallow-water OSV market. It specialises in building small-mid anchor handling tug supply (AHTS), platform supply vessels (PSVs), workboats and accommodation barges. It also operates a fleet of standby vessels and a number of OSVs in conjunction with its partners.
See important disclosures at the end of this report
7
Nam Cheong (NCL SP) 23 June 2014
Recommendation Chart Price Close 0.48 0.48 0.52
0.41
0.45
0.45
0.37 0.38
0.35
0.34
3.0
0.39
3.5
0.35
0.33 0.33 0.35 0.34
0.30
Recommendations & Target Price
0.29
4.0
NR
4.5
2.5 2.0
1.5 1.0
0.5 Buy 0.0 Jun-09
Neutral
Sell
Oct-10
Trading Buy
Jan-12
Take Prof it
Not Rated
Apr-13
Note: NCL listed via RTO in May 2011. Previous stock prices pertain to Eagle Brand Holdings and are irrelevant. Source: OSK-DMG estimates, Bloomberg Date
Recommendation
2014-05-15
Buy
Target Price Price 0.52
0.38
2014-03-31
Buy
0.48
0.34
2014-02-26
Buy
0.48
0.34
2014-02-20
Buy
0.45
0.34
2014-01-29
Buy
0.45
0.32
2013-12-31
Buy
0.45
0.32
2013-12-30
Buy
0.45
0.32
2013-11-13
Buy
0.41
0.29
2013-10-01
Buy
0.39
0.29
2013-09-19
Buy
0.38
0.28
Source: OSK-DMG estimates, Bloomberg
See important disclosures at the end of this report
8
RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: may fall has by more 10% over next 12 months Take Share Profit:price Target price beenthan attained. 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