Nam Cheong leadership transition will be smooth: OCBC

Business directions will stay the course.

In its company update, OCBC Research said Nam Cheong's re-designated CEO Mr Leong Seng Keat, who replaces Datuk Tiong Su Kouk, has 15 years of experience in the IT industry and has a solid track record in marketing the company's vessels internationally, which should ease concerns of a rocky turnover.

Here's more from OCBC:

New CEO; but expect a smooth transition. Nam Cheong Limited recently announced that its Executive Director, Mr. Leong Seng Keat, has been re-designated as the CEO. Datuk Tiong Su Kouk, who is also a controlling shareholder with a 43% stake, will relinquish his CEO position but he remains as the Executive Chairman. We believe that this leadership transition would be smooth and do not expect any significant changes to the group’s business directions. Mr. Leong, also the son-in-law of Datuk Tiong, joined Nam Cheong in 2005 after 15 years in the IT industry. With his sales and management experience, Mr. Leong successfully marketed the group’s vessels to the international market.

Strong market leadership. We continue to like Nam Cheong for its market leadership in Malaysia. Having finetuned its outsourcing strategy over the years, the group now dominates the OSV market with about 70% domestic market share. Although majority of its vessels are built in third-party Chinese yards, the group has supervising teams on the ground to ensure that the vessels are of sound quality. This outsourcing strategy allows Nam Cheong to scale up its production capability quickly without having to incur hefty capital expenditures.

Pick-up in OSV demand expected. Petronas had pledged to spend RM300b in capital expenditure over 2011-15, 80% more than the previous 5-year period. We believe this will likely result in increased investments across the Malaysian offshore oil & gas industry. Already, Nam Cheong is seeing a healthy pick-up in order wins (FY11: 13 vessels; FY12: 21 vessels) and it has recently expanded its shipbuilding programme to 28 vessels for FY14F (FY13: 19 vessels). Its large order-book of MYR1.3b, for 26 vessels delivered over FY13-15F, helps to mitigate its risk by providing a base level of earnings.

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