Singapore-based brokerage house UOBKayHian has recommended investors to sell off their stocks of Nam Cheong in view of the potentially weaker earnings for the offshore services provider in the first quarter of 2015.
UOBKayHian expects the company’s earnings to bottom in the first half of 2015, based on the low contract wins announced in the first quarter, with only two wins as compared with the nine contract wins worth USD197 million in the first quarter of 2014. The two wins in the first quarter of 2015 comprise a USD58 million contract for a 200-men accommodation work vessel (AWV) and a 12,000 bhp anchor handling tug supply (AHTS), with deliveries in 2015 and 2016 respectively.
Besides, Nam Cheong has only managed to sell 20 vessels out of the planned 35 vessels in its shipbuilding programme. The sales of vessels comprise of six AHTS, six platform supply vessels (PSVs), six emergency response and rescue vessels (ERRV), and two 200-men accommodation work boats (AWBs). In the meantime, the company’s unsold vessels include one 200-men AWB, two 300-men AWB, eight AHTS, and four PSVs.
Meanwhile, the brokerage house noted that vessel prices and margins have been under pressure due to the overall weak demand environment. According to UOBKayHian’s findings from vessel owners, vessel prices have dropped at least by 20% from the peak. Thus, analyst from the brokerage house expects gross margins will be affected as a result and predicts quarterly gross margins at 15-17% for 2015.
In addition, UOBKayHian estimates the shipbuilder’s first quarter net profit in 2015 to hover around MYR40-44 million (USD11-12.2 million), down 38-45% year on year from MYR73.1 million. Nam Cheong is slated to release its first quarter results on 14 May.
Currently, Nam Cheong’s stock trade around SGD0.32 per share, while UOBKayHian has set a target price of SGD0.28 per share for the offshore services provider.