30 September 2013

Nam Cheong - Malaysia Shipbuilder Listed in SGX - September 2013

I learnt Nam Cheong from research houses, that it is now enjoying a forward PE of less than 10.0 X and EPS CAGR of more than 30% in recent years. 

The business model of Nam Cheong is to have both project based business & recurring income base business. While the recurring income business (Vessel Chartering) stake is still very small ( < 10% of total revenue), we do expect that the company could still grow in its main business (Ship building) by managing the Build-To-Stock business model well. BTS business model requires the company to have an accurate forecast on the needs of vessels ahead of the booking from various clients. This is different from Build-To-Order business model where BTO business model would take longer period to complete the vessels.  

If we look at the latest Cash Flow Statement (2013Q2 FS), CAPEX increased a lot while Operating Cash Flow suffering from Negative amount, implying the company may need to have more Financing Cash Flow to support its operating activities (which the company already did a placement earlier this year by issuing new shares). 

Since its debut in SGX 2 years ago, we have seen a very volatile shares price movement. With current shares price of 28.0C, I believe that it can be considered as 1 of the cheap O&G counters listed in SGX. 

However, please note that as Nam Cheong main competitive adventage is its strong relationship with PETRONAS related companies, it is currently depending on Petronas's CAPEX plan to get more deals on shipbuilding contracts. 

The latest news was that it clinched a US$120M contract to sell 4 PSVs to company in Lartin America. I believe that it can further enhance its position by establishing more relationship from various regions in the world. 

I believe it can break its record of 21 Vessels sold last year by this year. I understand that when the O&G sector is expanding, the company may get more contracts. To take opportunities from there, the company may have to borrow more from banks or issue new shares to facilitate the growth of the working capital requirements. To me, I personally prefer to have a optimal debt structure instead of relying on new shares placement. Nonetheless, I will need to monitor closely how the entire O&G sector progress to decide which counter I like best. Currently Ezion (and its related co. such as YHM / Ocean Sky) are in the spotlight, so I tried to put other counters in my watch list. 

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