| UOB Kay Hian recommends ‘sell’ for Nam Cheong |
| Singapore-based brokerage house UOB Kay Hian recommended that investors sell their shares of offshore support vessel owner Nam Cheong because of the company’s earnings volatility. Analysts from UOB Kay Hian have set a target price of SGD0.28 (USD0.20) per share. The stocks are currently trading at around SGD0.30 in the Singapore Exchange. Singapore-listed Nam Cheong has revised its 2015 shipbuilding programme. Initially the company had planned to construct 35 vessels in 2015, but the revision has pushed an estimated 12 vessels into the 2016 programme and swapped an anchor handling tug supply (AHTS) vessel with a platform support vessel (PSV). In the meantime, only 16 vessels of the 24 in the 2015 shipbuilding have been sold. The remaining eight vessels are worth an estimated USD167 million. Meanwhile, only 12 of 30 vessels composed for the 2016 shipbuilding programme have been sold so far. The 18 unsold vessels are worth approximately USD383 million. “We estimate half of the vessels to be deferred orders from previous programmes and the rest are new additions, comprising PSVs of 3,000–5,000 dwt at 47%, AHTS of 5,000–6,000 bhp at 13%, AHTS of 8,000–12,000 bhp at 20%, and emergency response and rescue vessel at 20%,” noted the UOB Kay Hian analysts. The analysts forecast that Nam Cheong will still be able to maintain positive earnings, assuming the worst case scenario where the company does not sell any more vessels for 2015 and 2016. The brokerage house estimated that the earnings will decline by 70% year on year (y/y) in 2015 and 58% y/y in 2016. “The results stand testament to Nam Cheong’s lean, asset-light strategy, which is proving itself in times when asset-heavy shipbuilding companies are finding themselves unprofitable,” the analysts explained. |