Nam Cheong 2Q Net Profit Up 83 Pct (Malaysia)

Nam Cheong Limited , one of Malaysia’s largest Offshore Support Vessel builders, reported strong results performance with an 83% surge in net profit to RM41.1 million for the three months ended June 30, 2013 (“2Q 2013”), from RM22.5 million in the corresponding period last year (“2Q 2012”).

Robust vessel sales boosted a revenue growth of 84% to RM275.3 million in 2Q 2013, from RM149.8 million in 2Q 2012.

Datuk Tiong Su Kouk, Executive Chairman of Nam Cheong, said: “Our strong financial performance is a clear indicator that we are one of the key beneficiaries of the uptick in booming offshore activities in Malaysia. As the country’s largest OSV builder, we are strategically placed to tap on growth opportunities in this sector, leveraging on strong relationships with long-standing blue chip customers; and building new ones. Our close ties with Petronas-licensed companies, for example, continue to give us our competitive edge in securing contracts. At the same time, close interaction with all customers keeps us keenly attuned to market trends in the OSV sector.”

Leong Seng Keat, Nam Cheong’s Group Chief Executive Officer said: “Indeed, having strong market intelligence is one of the key success factors of our unique and effective business model that focuses on both the higher margin built-tostock as well as built-to-order series of vessels. By accurately forecasting market demand and building the right vessels ahead of time, we are able to close the gap for ship operators, helping them to enhance their winning capabilities. 

“In 2Q 2013, a significant portion of the increase in shipbuilding revenue came mainly from the progressive recognition of revenue derived from PSVs sold. Our shipbuilding programme has 12 PSVs for delivery in 2013 as compared to only 2 PSVs in 2012, a clear indication that we have accurately forecasted an increase in demand for this vessel type with the shift of E&P activities away from near shore projects to deeper water due to a depletion of oil reserves.”

Financial Review

Nam Cheong’s 2Q 2013 revenue rose significantly year-on-year by RM125.5 million, or 84%, to RM275.3 million with positive topline contributions from both its shipbuilding and vessel chartering segments. Revenue surged 87% to RM259.2 million for the Group’s core shipbuilding segment with progressive revenue from the 7 PSVs sold. Its vessel chartering segment saw a 45% climb to RM16.1 million, in line with a higher utilisation of the Group’s charter fleet of 14 vessels. Revenue from its vessel chartering segment comprised 6% of overall topline contribution. Gross profit for 2Q 2013 was RM53.8 million, 84% higher than the RM29.6 million

recorded for 2Q 2012. This was in tandem with the higher revenue and a healthy gross profit margin of 20%, which held steady over the same period. This is well within the range of 19% and 22%, notwithstanding a decline in gross profit margin from 74% to 55% for the Group’s vessel chartering segment. Other income was consistent at RM3.2 million while finance cost increased from

RM1.1 million in 2Q 2012 to RM1.6 million in 2Q 2013, as a result of interest expense on the Medium Term Notes (“MTN”) issued in November 2012 and related amortisation of debt issuance costs.

Overall net profit after tax was higher at RM41.1 million for 2Q 2013, compared to RM22.5 million for 2Q 2012, representing a 83% increase year-on-year. With the Group’s healthy balance sheet and strong cash position of RM214.1 million, it is well-positioned for growth. In addition, the Group’s net gearing ratio reduced to 0.31 times as at June 30, 2013, from 0.38 times as at December 31, 2012, providing a healthy headroom for growth.

Outlook 

According to analysts, overall international exploration and production (“E&P”) spending is expected to reach a record US$678 billion by end 2013. In Malaysia, Petronas plans to develop 25% of Malaysia’s 106 marginal fields containing 58 million boe in total . In addition, enhanced oil recovery projects will be stepped up to spur the country’s oil and gas industry’s ongoing quest for hydrocarbons and as part of Petronas’ RM300 billion capital expenditure, of which an investment of US$12 billion has been allocated over 30 years between Petronas and Shell to recover oil off Sarawak and Sabah.

Leong added: “Increased E & P spending coupled with a healthy OSV orderbook level and the ongoing OSV replacement cycle are positive growth drivers for us. We have sold a total of 16 vessels worth US$311.6 million in the first seven months of 2013, surpassing the 7 vessels worth US$166.2 million sold during the same period last year. With increased activities by oil majors, we believe that we are on track to surpass our record high of 21 vessel sales achieved in 2012. “We continue to see a clear rising trend especially for AHTS and PSVs given the replacement cycle for small size AHTS; and opportunities in deeper water developments where PSVs are concerned. As one of leading players in the construction of mid size PSVs, we are benefiting from the growing demands in this sector of the industry and will continue to engage in businesses relating to top side maintenance, hook up and commissioning and exploitation of reserves from marginal fields.

“Notably, as we progress, we have become even more international in our approach, securing new customers from regions such as West Africa, Brazil and Cyprus. This has increased our global footprint from our existing markets such as the US, Europe and the Middle East. We are in a strong position to tap future opportunities not only in Asia but also internationally.”

As at August 13, 2013, the Group’s order book was approximately RM1.4 billion in value, with 22 vessels contracted for recognition up to 2015. The Group’s shipbuilding programme comprises a mix of OSVs for shallow and deep water, for deliveries beyond 2014