KUCHING: Analysts believe that Nam Cheong Ltd (Nam Cheong) should benefit disproportionately from a recovering offshore support vessel (OSV) market, due to added support from the Malaysian OSV operators, which are profiting from Petroliam Nasional Bhd’s (Petronas) spending push.
According to the research arm of Maybank Investment Bank Bhd (Maybank IB Research), a recent conversation with the management revealed that they continue to exude confidence in vessel sales for the next two years, thus reinforcing Maybank IB Research’s positive view.
“Management’s optimism reinforces our view that the demand for OSVs is firmly on a recovery path, driven by increasing rig count, preference for younger and more sophisticated vessels, establishment of more offshore structures and platforms, and easing of an oversupply situation,” the research arm said.
Nam Cheong is the preferred vessel builder for many Malaysian OSV operators such as Bumi Armada Bhd, Perdana Petroleum Bhd and Icon Offshore Bhd.
“As such, it stands to gain more significantly vs other OSV shipbuilders due to an added support from the Malaysian names which will ride on Petronas’s spending push in the Malaysia oil and gas sector,” Maybank IB Research observed.
On a side note, the research arm highlighted that Nam Cheong recently secured an US$84 million contract from Malaysia-listed Perdana Petroleum for two 500-men accommodation work barges (AWBs) that came with an option to purchase another two.
“This will be built under its build-to-order (BTO) programme which was not in our previous forecasts.
“We believe that the option would likely be exercised, adding another US$84 million to its orderbook,” the research arm said.
On the forecast for the 2016 shipbuilding programme, Maybank IB Research acknowledged that it was also too conservative in our previous assumptions for the 2016 build-to-stock (BTS) shipbuilding programme where it assumed only 26 vessels worth US$515 million.
“We now raise our forecast for the 2016 shipbuilding programme to 30 vessels worth US$585 million, similar to 2015’s.
“Consequently, our FY14E-16E earnings per share (EPS) forecasts are raised by one per cent-26 per cent,” it said, explaining that this is to reflect its increasingly positive view on the contract win outlook for Nam Cheong.
All in, Maybank IB Research’s target price is raised to S$0.55 per share after ascribing a higher FY15E price-to-book value (P/BV) of 2.2-fold (previously 1.9-fold).
“In our view, a higher multiple is warranted given its better return on equity (ROE) profile, 20 per cent assumed sustainable ROE versus 17 per cent previously, post our earnings upgrades,” the research arm said, adding that it reiterated ‘buy’ on the stock.