Nam Cheong (NCL SP) SELL
What's New?
- Nam Cheong announces profit warning, expects loss for 4QFY15.
- Group is expected to remain profitable on a full-year basis despite the loss in 4QFY15.
- No details provided on cause of the loss.
Our Take
- No reasons were provided on causes for the 4Q15 loss, but we suspect that it is either due to possible provisions made on its shipbuilding contracts, or a larger loss from their chartering segment.
- We had earlier highlighted the risk that Nam Cheong might make provisions on their shipbuilding contracts, which would teeter them into losses. This has come earlier than expected.
Valuation/ Recommendation
Our recommendation remains SELL, with a target price of S$0.09. This is based on 0.47x 2016F P/B, premised on Brent crude assumption of US$50/bbl. With the sale of its offshore vessels closely tied to the oil price environment, which is not expected to recover in the near term, Nam Cheong will face significant difficulties in selling its inventory of Built-to-Stock vessels. With prices of newbuilds falling, provisions on their existing contracts are likely to be made. Even in the unlikely event that the shipbuilding segment performs, net profit is expected to be marginal. Continued losses from its chartering segment will also be a drag on earnings. As such, we expect the company to barely breakeven, or make losses going into FY16. Our estimates will be revised post its FY15 results, which is expected to be released on or before 29 Feb 2016.
