Nam Cheong FY14 profits surge 56% YoY

As vessels delivered leaped 20%.

Healthy activity will continue to be seen in the shallow water, cabotage-protected space.

Nam Cheong celebrates a good year, with core PATMI, up 56% YoY riven by a higher number of vessels delivered in FY14 (24 vessels vs 20 vessels in FY13). The final quarter appeared weaker on the YoY and QoQ comparisons due to a higher mix of lower-margin build-to-order vessels, conservative provisioning, fair value losses on derivatives of MYR16.3m, and a higher amount of commissions paid to ship brokers.

According to a report by OSK-DMG, in good times, owners order vessels well ahead of delivery, paying a lower margin. Now, owners are likely to wait for more certainty on contracts, and pay a higher premium for vessels closer to their delivery date. Nam Cheong’s experience from 2009-2011 bears this out, with margins maintained at 19-20% even as revenues fell. Today, the orderbook stands at a record MYR1.7bn, and OSK-DMG continues to expect both revenue growth and a stable c.18% shipbuilding margin.

Nam Cheong has witnessed stellar earnings growth promoting the standardisation theme. Today, the low oil-price environment will further prompt oil majors to adopt a “cost structure standardisation” strategy in a bid to cut costs. Together with vessel owners’ preference for shorter lead times, analysts envisage Nam Cheong extending its dominant industry position as oil majors’ requirements and vessel owners’ preferences finally begin to align.