Nam Cheong

[mulyc]

I'm surprised there isnt a Nam Cheong thread here.

This fella has been busy accumulating contract wins lately.

SIAS Research raises Nam Cheong's intrinsic value to 34 cents

Analyst: Ng Kian Teck

Nam Cheong Limited (Nam Cheong) posted full year revenue and PAT of RM$877m and RM136.6m, largely in line with our RM$825m and RM140m forecasts.

Nam Cheong’s FY14 shipbuilding programme is an astonishing 25 vessels with value amounting to US$520m. The company has sold 13 out of their 19 FY13 shipbuilding programme and we project the remaining 6 and about 12 of the FY14 programme vessels to be sold this year.

The strong shipbuilding order book, optimistic industry outlook prompted us to raised our FY14F and FY15F revenue to RM1.13b and RM1.15b, respectively. Maintain Increase Exposure with a higher intrinsic value of S$0.340.

[mulyc]

Even with more contract announcements, the stock price is still languishing at the 25c level. Weird.

Anyone knows of a good explanation?

[GreedandFear]

Don't have an explanation but I have recently looked into this stock a bit more and was a bit surprised to discover that the construction for 80% of the ships that it sells is outsourced to PRC shipyards. Whilst this has many benefits (presumably cheaper and also allows Nam Cheong to ramp up sales without the need for major capex to expand its Sarawak yard) it does raise issues such as quality control and whether end customers will, eventually, just bypass Nam Cheong and go directly to the PRC yards. The other point that jumped out at me is that the company proactively builds ships without any purchase contracts, taking the view that they understand the market and will be able to sell, at a profit, in the future. Hence, the stock not only involves construction risk but also directional risk of ship prices. So far it has all worked out great but could end in tears. I guess they benefit from being Malaysian and are therefore favoured by Malaysian buyers who prefer to deal with them rather than a PRC ship yard. Having said that, with net income margins in the 15% range, I would have thought that their customers could feel that they are taking out too much by being the middle man....I am tempted to take a trading position but not a long term position...

[Ben]

Don't have an explanation but I have recently looked into this stock a bit more and was a bit surprised to discover that the construction for 80% of the ships that it sells is outsourced to PRC shipyards. Whilst this has many benefits (presumably cheaper and also allows Nam Cheong to ramp up sales without the need for major capex to expand its Sarawak yard) it does raise issues such as quality control and whether end customers will, eventually, just bypass Nam Cheong and go directly to the PRC yards. The other point that jumped out at me is that the company proactively builds ships without any purchase contracts, taking the view that they understand the market and will be able to sell, at a profit, in the future. Hence, the stock not only involves construction risk but also directional risk of ship prices. So far it has all worked out great but could end in tears. I guess they benefit from being Malaysian and are therefore favoured by Malaysian buyers who prefer to deal with them rather than a PRC ship yard. Having said that, with net income margins in the 15% range, I would have thought that their customers could feel that they are taking out too much by being the middle man....I am tempted to take a trading position but not a long term position...

If you have this fear with Nam Cheong, maybe you can take a look at Penguin as an alternative.

[GreedandFear]

Thanks - didn't know this one. However, I prefer slightly bigger companies :-)

[mulyc]

Don't have an explanation but I have recently looked into this stock a bit more and was a bit surprised to discover that the construction for 80% of the ships that it sells is outsourced to PRC shipyards. Whilst this has many benefits (presumably cheaper and also allows Nam Cheong to ramp up sales without the need for major capex to expand its Sarawak yard) it does raise issues such as quality control and whether end customers will, eventually, just bypass Nam Cheong and go directly to the PRC yards. The other point that jumped out at me is that the company proactively builds ships without any purchase contracts, taking the view that they understand the market and will be able to sell, at a profit, in the future. Hence, the stock not only involves construction risk but also directional risk of ship prices. So far it has all worked out great but could end in tears. I guess they benefit from being Malaysian and are therefore favoured by Malaysian buyers who prefer to deal with them rather than a PRC ship yard. Having said that, with net income margins in the 15% range, I would have thought that their customers could feel that they are taking out too much by being the middle man....I am tempted to take a trading position but not a long term position...

that does make sense. however it feels as though mr market isnt pricing in all the recent contract wins at all. in fact, its price has been tapering off as it announced more contract wins.

begs the question of what must nam cheong do to make its price cheong?

[a74henry]

Must be the Malaysia election. Wait for the election results...maybe when BN wins, it will cheong.

[l0nEr]

btw, i read from somewhere that the short interest on the stock was pretty high the past few days. (u can calculate by using the data released by SGX)
no idea who is shorting, but might be the reason for the under performance, and potential entry for the value investor.

The recent order win is pretty big i thought, could cover quite a substantial portion of the revenue.

[mulyc]

I think this msia elections gonna affect alot of counters that have operations in msia.

A BN win would be good, but anything else will spell a boatload of volatility.

Not that im rooting for anyone though...

[vingaard]

In terms of valuation and growth prospects, Nam Cheong looks good. However, I'm quite concerned with their level of receivables which is more than half their annual revenue and the high levels of short term debt. Perhaps they are using short term debt to finance their customers?