Singapore-based brokerage house UOB Kay Hian has recommended investors to sell offshore services provider Nam Cheong’s stocks in view of its lower net profit and weak business outlook.
Analysts from UOB Kay Hian have set a target price of SGD0.28 (USD0.21), while the Singapore-listed Nam Cheong’s stocks are currently traded at approximately SGD0.315 per share.
The brokerage house stated that Nam Cheong’s net profit has plunged 45% year on year to MYR39.3 million (USD11.02 million) because of its lower revenue from fewer vessels delivered, higher finance costs incurred during the quarter, and a foreign-exchange loss of MYR2.5 million as well as a net fair value loss of MYR3.8 million on derivatives.
In addition, offshore marine tendering activities remain weak despite Brent crude oil price stabilising at around USD68/barrel. Vessel owners will stop seeking newbuilds during this low activity, impairing Nam Cheong’s build-to-stock model.
The low demand has prompted Nam Cheong to revise its 2015 shipbuilding programme downwards from 35 to 24 vessels, reshuffling 11 vessels into the 2016 programme of 30 vessels. In the meantime, deliveries for 2015 have been deferred to 2016 to address the low demand for offshore support vessels in the current environment.
Currently, Nam Cheong has an orderbook of MYR1.6 billion as of 31 March 2015, with around MYR1.2 billion unrecognised. However, the brokerage house noted that 70% of the orderbook will be recognised in 2015, and the remaining 30% in 2016.