Nam Cheong CEO Positive on OSV Market

Malaysia Star Newspaper interviewed SGX listed Nam Cheong CEO Leong Seng Keat and reported last Saturday, hearing from Leong that OSV market is still resilient in the near term.

Below is a summary of important points.

OSV Outlook Positive
  • Shallow Water Market Recession Proof in Near Term
  • Nam Cheong able to sustain 20-30% growth momentum of the past few years. 
  • Nam Cheong Enquiries from International Clients increased but Malaysia market stay flat
  • Nam Cheong to benefit from Petronas’s RM300bil, 5 year capex for 2011-2015. 
  • Malaysia seeing demand for accommodation work boats, small-sized anchor handling tug supply (AHTS) vessels and platform supply vessels (PSV).
  • West Africa localisation policies will attract local first time operator to demand for AHTS and PSV.
  • Brazil Petrobras require additional 200 OSV for next 6 years, comprising of demand for small-sized AHTS and mid-sized PSV. 
  • With the onstream of new generation rigs, demand for larger Size AHTS above 6,000 BHP to pick up.
  • 169 Rigs expected to begin operation between 2013 to 2015 requiring 650 OSV.
  • Industry data suggest positive outlook due to increasing number of rigs in operation and 30% of global AHTS fleet above 25 years of age to be replaced. 

Nam Cheong’s Solid Fundamentals
  • Nam Cheong superb results, with revenue surging 74% to RM407.3mil and net profit up 99% to RM71.3mil. Order book stands at RM1.4bil made up of 23 vessels for delivery up to 2016. Two-thirds of its business is from repeat customers.
  • Nam Cheong to build 30 vessels 2014 and 35 vessels in 2015 up from its record 20 last year.
  • Roughly 80% of its production is outsourced to shipyards in
    China’s Fujian, Mawei and Xiamen provinces, where ships can be produced cheaply
    and quickly.
  • Nam Cheong to Launch new fuel-Efficient Vessels.
  • Nam Cheong’s market share is estimated at 12% globally and
    75% in Malaysia.
Build to Stock Model Success and Risk
  • Nam Cheong build-to-stock (BTS) model enables it to enjoy gross margin of 15-20% double that of conventional shipbuilding. 
  • BTS model is risky because it will also put the firm in a tight spot if the market turns and demand for its newbuilds dries up, leaving Nam Cheong with unsold ships
  • Nonetheless, Nam Cheong not only has the track record of riding through the financial crisis, but also able to maintain its profit margin then.
  • Nam Cheong has sold more than 100 BTS ships since 2007.
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