Nam Cheong has been consolidating from 0.24 to 0.300 since the start of this year on Jan 2013 which will be about 9 months already. It has also been trading above its Channel support line (Upward sloping line) which shows that the general uptrend is still in placed so far. Note that since April 2012, it has also been consistently trading above the 200 DAY MA (Dotted blue line) which can also signal that the uptrend in the longer term is still very much intact. Critical resistance is seen crucially at 0.300 currently where there are huge Sellers stacks. After 0.300, sellers are min. It may continue to consolidate for no idea how long below the 0.300, so this is mainly a Buy on Breakout play if the 0.300 critically clears out. A break above 0.300 can result in a NEW UP PHASE again and target would be 0.34 to 0.36 in the near term. Can consider averaging up on the breakout from 0.305 to 0.31.
Stop loss at 0.28 for Long Positions on breakout.
UOBKH – 21 JUNE 2013
Nam Cheong (NCL SP/BUY/Target: S$0.34). Recently, Nam Cheong
announced the sale of four 3,000dwt PSVs and one 12,000bhp AHTS for
US$110m, easing concerns of a potential PSV oversupply. Following the
most recent sale, Nam Cheong's orderbook has hit an all-time high of
RM1.7b. Net orderbook stands at RM1.3b, of which about RM600m will be
recognised in 2013 and the remainder in 2014-15. Maintain BUY and
target price of S$0.34, based on 9.7x 2014F PE.
OCBC - 4TH JUNE 2013
Nam Cheong: Ride the upcycle!
● Leadership transition
● Dominant in Malaysian market
● Rising OSV demand
New CEO; but expect a smooth
transition
Nam Cheong Limited recently announced that
its Executive Director, Mr. Leong Seng Keat,
has been re-designated as the CEO. Datuk
Tiong Su Kouk, who is also a controlling
shareholder with a 43% stake, will relinquish
his CEO position but he remains as the
Executive Chairman. We believe that this
leadership transition would be smooth and do
not expect any significant changes to the
group's business directions. Mr. Leong, also
the son-in-law of Datuk Tiong, joined Nam
Cheong in 2005 after 15 years in the IT
industry. With his sales and management
experience, Mr. Leong successfully marketed
the group's vessels to the international
market.
Strong market leadership
We continue to like Nam Cheong for its
market leadership in Malaysia. Having fine tuned
its outsourcing strategy over the
years, the group now dominates the OSV
market with about 70% domestic market
share. Although majority of its vessels are
built in third-party Chinese yards, the group
has supervising teams on the ground to
ensure that the vessels are of sound quality.
This outsourcing strategy allows Nam Cheong
to scale up its production capability quickly
without having to incur hefty capital
expenditures.
Pick-up in OSV demand expected
Petronas had pledged to spend RM300b in
capital expenditure over 2011-15, 80% more
than the previous 5-year period. We believe
this will likely result in increased investments
across the Malaysian offshore oil & gas
industry. Already, Nam Cheong is seeing a
healthy pick-up in order wins (FY11: 13
vessels; FY12: 21 vessels) and it has recently
expanded its shipbuilding programme to 28
vessels for FY14F (FY13: 19 vessels). Its
large order-book of MYR1.3b, for 26 vessels
delivered over FY13-15F, helps to mitigate its
risk by providing a base level of earnings.
Given the strong growth profile, we find
current valuation (FY13F PER of 8.6x)
attractive. We now raise our FV to S$0.35
(previously S$0.30) on a higher PER of 11x.
Maintain BUY.
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