Nam Cheong sales momentum to slow on back of massive Petronas capex cut

Petronas will cut new project spending by as much as 20%.

Nam Cheong’s sales momentum will take a hit from Petronas’ impending capex cut. The Malaysian oil and gas company revealed last week that it is mulling to cut capex for new projects by 15-20% next year should oil prices remain low.

According to OCBC, although Nam Cheong’s Malaysian customers account for only 20-30% of its year-to-date vessel sales, the fall in oil price is a global event and should impac all of Nam Cheong’s customers.

“Moreover, should an industry downturn be worse than expected, the group would face higher risks on margins and even the possibility of unsold vessels. Order cancellation risk for its RM1.4b order book look low for now, but with the broader industry slowdown and sector de-rating, we deem it necessary to lower our P/E for Nam Cheong from 9.5x to 7x, and based on FY15F earnings, our fair value estimate drops to S$0.38,” noted OCBC.