Stock looks fairly valued for now; wait for signs of recovery
Stock has hovered in a tight range which we believe reflects the
still-challenging OSV environment and lack of vessel sales
momentum. Upside to our target price is not significant.
Can Nam Cheong find buyers in this environment?
have slowed in FY15 on the back of the oil price slump, with
only two contract wins YTD. The company has yet to sell eight
vessels from its 2015 built-to-stock programme and 18 from its
2016 programme. An added worry is that almost half of the
unsold vessels are PSVs, which is probably the most oversupplied
segment currently in the OSV space.
May not be as bad as FY09
In FY09, following the financial
crisis, Nam Cheong sold only four units of OSVs. We believe the
situation will be better this time around, as it is primarily an oil
price crisis and not a credit crunch issue. If requirements are
there, customers can still access the credit markets for vessel
loans. Thus, there is hope for order flows to pick up by 2H15.
Given the lack of earnings momentum as well as muted vessel
sales, we retain our HOLD call on Nam Cheong with an adjusted
target price of S$0.33 per share, pegged to 1.4x P/BV. This is in
line with 14-15% ROE expectations for FY15/16. Dividend yield
of about 3% limits downside risks to an extent.
Key Risks to Our View:
Slower recovery in orders, competition from China and currency
fluctuations are key worries
. The key risk to our view is that
order wins rebound more slowly than predicted, leaving the
company with excess vessel inventory on its balance sheet.
While its balance sheet is reasonably strong at this point,
working capital needs to be managed well to avoid stress.
Increasing competition from the Chinese yards, which have
been moving up the value chain into more sophisticated OSVs,
can also cause downside in the form of pricing woes and
margin pressures. (Read Report)
Source : DBS Group Research
Labels: Nam Cheong Ltd, Offshore Marine Sector