Nam Cheong

[Contrarian]

It's a coy in right place at the right time.

Build without orders = Build to Stock. An OSV costs $20M and more, so someone must be financing them cheaply. With the China shipyard building for them, it could be the china banks.

For now they can ride. If caught on the wrong side, they could end up like Jaya. Almost bankrupt.

Jaya Holding has learned from the chapter and gone for chartering instead. Its financials are much more stronger. They are also building technically more complex vessels with the IHC alliance. The chartering also gave them lucrative margins

So the new players are repeating the same steps as what Jaya did in the past. One day the music stops, die pain pain.


> Nam Cheong’s FY14 shipbuilding programme is an astonishing 25 vessels
> with value amounting to US$520m. The company has sold 13 out of
> their 19 FY13 shipbuilding programme and we project the remaining 6
> and about 12 of the FY14 programme vessels to be sold this year.

Don't have an explanation but I have recently looked into this stock a bit more and was a bit surprised to discover that the construction for 80% of the ships that it sells is outsourced to PRC shipyards. Whilst this has many benefits (presumably cheaper and also allows Nam Cheong to ramp up sales without the need for major capex to expand its Sarawak yard) it does raise issues such as quality control and whether end customers will, eventually, just bypass Nam Cheong and go directly to the PRC yards.

The other point that jumped out at me is that the company proactively builds ships without any purchase contracts, taking the view that they understand the market and will be able to sell, at a profit, in the future. Hence, the stock not only involves construction risk but also directional risk of ship prices. So far it has all worked out great but could end in tears. I guess they benefit from being Malaysian and are therefore favoured by Malaysian buyers who prefer to deal with them rather than a PRC ship yard. Having said that, with net income margins in the 15% range, I would have thought that their customers could feel that they are taking out too much by being the middle man....I am tempted to take a trading position but not a long term position...

[greengiraffe]

Offshore support is a tough industry. I lost big on Jaya during the last downturn initially buying a company with rich dividends and good order books.

Later did I know that Jaya was engaged in speculative builds.

Anyway, the darling back then was Ezra - booking a lot of gains from share sales.

Now the darling is Ezion. All I can say - I wouldn't really bother - no money in shipping generally - 7 years bear 3 years bull. I think there are better value plays around.

Fortunately, I still have a Jaya share cert to remind me of my mistakes.

GG

It's a coy in right place at the right time.

Build without orders = Build to Stock. An OSV costs $20M and more, so someone must be financing them cheaply. With the China shipyard building for them, it could be the china banks.

For now they can ride. If caught on the wrong side, they could end up like Jaya. Almost bankrupt.

Jaya Holding has learned from the chapter and gone for chartering instead. Its financials are much more stronger. They are also building technically more complex vessels with the IHC alliance. The chartering also gave them lucrative margins

So the new players are repeating the same steps as what Jaya did in the past. One day the music stops, die pain pain.


> Nam Cheong’s FY14 shipbuilding programme is an astonishing 25 vessels
> with value amounting to US$520m. The company has sold 13 out of
> their 19 FY13 shipbuilding programme and we project the remaining 6
> and about 12 of the FY14 programme vessels to be sold this year.

Don't have an explanation but I have recently looked into this stock a bit more and was a bit surprised to discover that the construction for 80% of the ships that it sells is outsourced to PRC shipyards. Whilst this has many benefits (presumably cheaper and also allows Nam Cheong to ramp up sales without the need for major capex to expand its Sarawak yard) it does raise issues such as quality control and whether end customers will, eventually, just bypass Nam Cheong and go directly to the PRC yards.

The other point that jumped out at me is that the company proactively builds ships without any purchase contracts, taking the view that they understand the market and will be able to sell, at a profit, in the future. Hence, the stock not only involves construction risk but also directional risk of ship prices. So far it has all worked out great but could end in tears. I guess they benefit from being Malaysian and are therefore favoured by Malaysian buyers who prefer to deal with them rather than a PRC ship yard. Having said that, with net income margins in the 15% range, I would have thought that their customers could feel that they are taking out too much by being the middle man....I am tempted to take a trading position but not a long term position...

[TheMillennium]

SGX:
NAM CHEONG SECURES SALE CONTRACTS FOR ONE ANCHOR HANDLING
TOWING SUPPLY VESSEL AND FOUR PLATFORM SUPPLY VESSELS WITH A
TOTAL VALUE WORTH USD110 MILLION

[mulyc]

13/05/2013
Nam Cheong Limited (NCL SP) BUY

Price/Tgt: S$0.26/S$0.34 Mkt Cap: US$433.7m 3-mth daily volume: US$1.8m 1-Yr Hi/Lo: S$0.285/0.162

1Q13: Profit in line, Sells five vessels for US$110m

Analysts: Tan Jun Da / Nancy Wei Tel: (65) 6590 6616/6628

Results
• Profit in line. Nam Cheong reported a net profit of RM35.8m (+8% yoy) for 1Q13. Excluding gains on disposal of property, plant and equipment of RM2.8m, this is in line with our 1Q13 forecast of RM33m-36m.
• Dip in gross margin. 1Q13 gross margin dipped to 18.6% from 22.6% in 1Q12, while 1Q13 gross profit declined 6% yoy despite a 14% increase in sales. This was due to lower contribution from the vessel chartering segment which experienced a lower utilisation rate, due to a number of its vessels undergoing docking for routine survey as required by the classification society.
• US$110m worth of vessels sold. Nam Cheong has sold one AHTS and 4 PSVs for US$110m. The 12,000 bhp AHTS was sold to a new customer, an emerging offshore marine services company based in Indonesia, while the four PSVs were sold to an existing customer, a leading oilfield services company based in Asia.

Valuation/ Recommendation
• Maintain BUY. Our target price of S$0.34 is based on 9.7x FY14F PE (2014F EPS: 8.8 sen or 3.5 S cents). Our target PE is 1.3SD above peers’ long-term PE mean of 7.0x, which we think is justified given Nam Cheong’s dominant 50-75% market share in a high barrier-to-entry market.

[Jacmar]

Those invested in Nam Cheong better dig deeper to understand what you are investing in. here is a copy/paste from another website by Investor central.



Nam Cheong Limited - Did it not pay cash for the new charter vessel?
Investor CentralBy Ashish Saxena | Investor Central
17/5/2013–Nam Cheong Limited has won US$241.1 mln worth of orders for 13 vessels sofar in 2013.

The Singapore-listed, Malaysia-based company just announced earnings for Q1 FY13:

Revenue: +14% to RM234.7 mln
Profit: +8% to RM35.8 mln
One-off gains/losses: RM2.8 mln vs Nil
Cash flow from operations: (RM85.1 mln) vs RM46.8 mln
Dividend: Nil
Order book: RM1.7 bln as at May 13, 2013

Shipbuilding revenue increased 17%, but chartering revenue fell 42% due to docking of its fleet for routine inspection.

Overall gross profit margin dropped to 19% in Q1 2013, from 23% a year ago.

Investor Central. We keep your investments honest.

Question1. Did it really not pay cash for the new charter vessel?

We are scratching our heads to figure out the mystery of Nam Cheong's newly-acquired charter vessel.

In the earnings report (page 13), the company said an RM86.5 mln increase in 'property, plant and equipment' was due to addition of a vessel to its fleet during the quarter.

But the cash flow statement (page 7) shows the company acquired 'property, plant and equipment' worth only RM406,000 during the quarter.

Therefore that leaves us wondering how did the company acquire a vessel worth at least RM86.5 mln (taking into account the depreciation and disposal of asset during Q1, the acquisition cost comes to around RM88.23 mln), but paying just RM406,000.

Question2. What 'property, plant and equipment' did it sell in Q1?

According to the cash flow statement (page 6 & 7), Nam Cheong disposed of 'property, plant and equipment' for RM7 mln.

And it made a gain of RM2.8 mln on the disposal.

But it stopped short of disclosing what assets were sold, and why.

Question3. What 'derivatives' is it referring to?

Nam Cheong recorded net fair value gain of RM2.6 mln on derivatives.

Interestingly, the company had RM77,000 worth of derivatives as on December 31, 2012.

And it didn't buy fresh derivatives during Q1 (as per the cash flow statement).

In other words, the company made a fair value gain of more than 30 times on its investment in derivatives.

That makes us all the more curious to know what derivatives are reaping such handsome returns.

Question4. What does "consistent" really mean?

In the earnings report (page 12), the company said its gross profit margin from shipbuilding was 20% in Q1 2012, but has dropped to 17% in Q1 2013.

But in its review of performance (on page 13), the company describes the gross profit margin of 17% at its shipbuilding business as 'consistent'.

We've checked whether Nam Cheong might be referring to Q4 FY12 margins, but these weren't mentioned in the release.

But we've checked the Q4 FY12 margins, too, and found that the shipbuilding business recorded a gross profit margin of 18%.

If anything, this suggests that there has been a "consistent downtrend" in gross margins.

Question5. Is it giving up margins to build-up the order book?

Shipbuilding margins have dropped from 20% in Q1 2012 to just 17% in Q1 2013.

The margins could be strained either due to rising costs and the shipbuilder's inability to pass that on to customers, or due to competitive pricing - by the shipbuilder - to win the orders.

While the management has not acknowledged either of the possibilities in the review of Q1 performance and commentary for the rest of the year, we wonder if Nam Cheong is giving up margins to win orders.

Question6. Why did its income tax expense drop 92% despite higher revenue and profit?

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).


©2013 Investor Central® - a service of Hong Bao Media

[mulyc]

That's a good counterargument to its current lagging share price. Would be great if there are further updates on this.

[mulyc]

Nam Cheong bags deals worth US$70.5m for 3 vessels
Posted on 24 July 2013 - 05:40am
sunbiz@thesundaily.com
Print
PETALING JAYA (July 24, 2013): Nam Cheong Ltd, the country's largest offshore support vessel builder, has secured sale contracts worth a combined US$70.5 million (RM224 million) for three vessels.

It sold one of the two platform supply vessels (PSVs) to an existing customer, a leading oilfield services company based in Asia. In mid-May this year, this same customer bought four PSVs from Nam Cheong.

The second PSV was sold to a subsidiary of a new customer in Cyprus, EDT Offshore, a well-established offshore marine services company which owns and operates a diverse range of high specification OSVs.

A unit of Perdana Petroleum Bhd bought the accommodation work barge (AWB). The same company bought two AWBs with similar specifications in April this year.

"In just a short span of time, we have secured three contract wins – two from repeat customers and another from a new customer in Cyprus. Our robust sales are indicative of strong industry momentum not only in the region but globally as well," Nam Cheong CEO Leong Seng Keat said in a statement yesterday.

With the latest contract wins, the group's order book now stands at RM1.5 billion.

"Year to date, we have sold a total of 16 vessels compared with seven a year ago. Given the robust industry momentum, we believe that we are on track to surpass our record high of 21 vessel sales achieved last year," said Leong.

The three vessels are being constructed as part of the group's build-to-stock series in two of Nam Cheong's subcontracted yards in China.

Delivery are scheduled between the first and fourth quarter of 2014, and are expected to contribute positively to the group's earnings for the financial years ending 2013 and 2014.

[greengiraffe]

PEOPLE
Plumbing the depths of shallow-water exploration

Shipbuilder's strategy protects it from volatility in offshore energy
Published on May 26, 2014 1:17 AM


Chief executive Leong Seng Keat expects Nam Cheong to maintain its vessel-producing ratio, of 90 per cent shallow-water ships and 10 per cent deepwater vessels. This means it will still make many more shallow-water vessels than deepwater ones. -- ST PHOTO: NG SOR LUAN

By Jonathan Kwok

THE offshore energy industry is known for its volatility but Singapore-listed vessel maker Nam Cheong reckons it is largely well buffered from the swings and roundabouts that come with the territory.

About 90 per cent of its ships are built for the shallow-water part of the energy industry, which is more resilient than the deepwater segment, for which only 10 per cent of its vessels are built, chief executive Leong Seng Keat told The Straits Times earlier this month.

Shallow water refers to exploration and production in water less than 500ft deep. It takes place in many areas around the world, from South-east Asia to the Gulf of Mexico in the waters closer to the coast.

"There's a lot of talk in the market about softening (of the offshore market). But it depends on the segment, and we have gone into a recession-proof segment," said Mr Leong, referring to shallow-water work.

"Shallow water is depleting, that's why people go to deepwater," he added, but noted that deepwater costs are high and activity there will be the first to be cut if oil prices fall.

"There's an on-off, on-off kind of situation when it comes to deepwater exploration."

In contrast, shallow-water production costs less and continues even when energy prices fall as economies need a baseline level of oil to function.

"The assets that we deploy (in shallow water) service the minimum energy requirements of the world," said Mr Leong.

The opportunity is getting more limited for shallow-water exploration - as most of the oil resources in these regions have already been found - but there are many initiatives to increase the production rate, he reckons.

In fact, 80 per cent of all offshore energy activity worldwide is conducted in shallow water although deepwater often hogs the headlines.

Mr Leong expects Nam Cheong to maintain its vessel-producing ratio, of 90 per cent shallow-water ships and 10 per cent deepwater vessels. This means it will still make many more shallow-water vessels than deepwater ones.

"There's still a lot in shallow waters," he said.

The company, headquartered in Kuala Lumpur but listed here, has a product range which includes platform supply vessels and accommodation work barges that play a key role in supporting oil rigs. It also has a ship chartering business.

Nam Cheong runs a shipyard in Miri, in the Malaysian state of Sarawak. In line with the increase in demand for its vessels in recent years, Nam Cheong has also outsourced the construction of some vessels to shipyards in China.

The company, Malaysia's largest builder of offshore support vessels, delivered 20 vessels last year and is looking to raise this to 30 this year.

"We are seeing quite a substantial increase in the number of vessel deliveries," said Mr Leong, who was in Singapore this month to speak to analysts after Nam Cheong reported its financial results. First-quarter net profit hit RM71.1 million (S$27.8 million), almost double the RM35.8 million a year ago. Revenue grew 74 per cent to RM407.3 million due to a higher number of vessel deliveries.

Much of its shipbuilding turnover came from the progressive recognition of revenue from the sale of platform supply vessels. These contributed 60 per cent, or RM229.3 million, of the total shipbuilding revenue for the quarter.

The vessel chartering segment rose from from RM6.4 million to RM24.1 million, following the expansion of its chartering fleet.

Nam Cheong builds many vessels using the same design, which helps create economies of scale and reduces costs. Vessel quality also improves as the firm gets better at building these models.

One different aspect of Nam Cheong's business strategy is that it builds vessels without first getting firm orders, unlike most other shipbuilders that start work only when they secure an order.

"We have always had a customer to take it off our hands, usually six months before completion," said Mr Leong.

The reason is that oil majors often expect offshore service providers to start work a few months after giving them the contract, he said. But building a vessel takes longer than that.

"We are in a better position to take the risk (of building the asset ahead of the order) compared with a shipowner," said Mr Leong. "When we do the demand forecasting, we know that somewhere in the world there will be demand for the vessel."

jonkwok@sph.com.sg

Background story

RECESSION-PROOF

There's a lot of talk in the market about softening (of the offshore market). But it depends on the segment, and we have gone into a recession-proof segment.

- Nam Cheong chief executive Leong Seng Keat

[specuvestor]

The weird part about Nam Cheong is that they commence their building without orders. Prima facie they seemed to be employing Jaya model. Surprisingly most of their construct were able to be sold off before completion so either their demand forecast is excellent or their Malaysian customer like them very much

BTW Jaya did not implode due to their business model. They imploded due to leverage under the new PE owner failed LBO

[CityFarmer]

The weird part about Nam Cheong is that they commence their building without orders. Prima facie they seemed to be employing Jaya model. Surprisingly most of their construct were able to be sold off before completion so either their demand forecast is excellent or their Malaysian customer like them very much

BTW Jaya did not implode due to their business model. They imploded due to leverage under the new PE owner failed LBO

I agree BTS (Build-to-Stock) is more risky than BTO (Build-to-Order). Nam Cheong is doing it, Jaya also is doing it, and ASL Marine has started doing the same recently.

I am not an expert in OSV sector, but it seems a viable strategy in this sector, with the followings, IMO

- Offshore rig seems pretty standard, thus the OSV, which typically need little customization. In short, there is always market for a ready-made OSV.
- BTS enables order-on-demand or within a shorter timeframe, while BTO needs typically 1-2 years to build. The strategy meeting the need of a unique customer segment, which require fast delivery
- With a shorter delivery, or even on demand, will allow a premium on price, thus higher margin.

(not vested)