Nam Cheong to unveil a massive shipbuilding programme by 2014.

Vessel completions are now pegged at US$450m.

UOB Kay Hian believes Nam Cheong may announce a larger-than-previously-forecasted 2014 shipbuilding programme. As a result, it raises its 2014 forecast for vessel completions to US$450m, from our prior conservative forecast of US$340m. We also expect 4Q12 net profit to be in line with expectations at RM46.3m, +75% yoy and +47% qoq. Maintain BUY with a higher target price of S$0.34 (previously S$0.30).

Here’s more:

• Expect larger-than-forecasted 2014 shipbuilding programme. We believe Nam Cheong could announce a larger-than-previously forecasted 2014 shipbuilding programme. As a result, we increased our 2014 vessel completion forecast to US$450m, from our prior conservative forecast of US$340m. This is compared with US$300m and US$390m worth of vessel completions in 2012 and 2013 respectively. Nam Cheong’s revenue tends to track vessel completions closely as vessels are usually sold 3-6 months before completion.

• Focus on shallow-water, mass-market products. We expect Nam Cheong will continue to focus on shallow-water, mass market vessels in
2014, which are highly marketable and widely accepted by oil majors globally.

• Vessel sales on track. To date, Nam Cheong has already sold 9 of the 19 BTS vessels to be completed in 2013, and 2 of the vessels to be
completed in 2014. The group has yet to announce its shipbuilding programme for 2014.

• Expect 75% yoy profit growth. We forecast 4Q12 net profit of RM46.3m, up 75% yoy and 47% qoq. Growth will be driven by higher revenue from vessel sales, bulk of which is booked at the point of sale. In 4Q12, Nam Cheong sold 9 build-to-stock (BTS) vessels worth US$153m, compared with US$28m and US$103m in 4Q11 and 3Q12 respectively.

• 0.3 S cents per share dividend forecast. We expect full-year dividend of 0.3 S cents per share, implying yield of 1.1%. We have assumed a payout ratio of 10%.

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