Nam Cheong Hits Record Net Profit in 3Q

Nam Cheong Limited, Malaysia’s largest Offshore Support Vessel builder, reports a sterling set of results for the three months ended September 30, 2013.

The Group recorded a revenue of RM341.2 million, which was a 140% increase from the RM141.9 million clocked in the corresponding period last year. In line with the robust topline performance, the Group achieved a record quarterly net profit of RM59.2 million for 3Q 2013.

Datuk Tiong Su Kouk, Executive Chairman of Nam Cheong, said: “We are delighted with this set of results which marks our strongest quarter since our listing on the Singapore Exchange. Having achieved record net profit, we look forward to further expanding our business to new geographical areas in order to achieve further growth for our shareholders.”

The Group’s significant revenue growth was due to increased contributions from both its shipbuilding and vessel chartering segments. The shipbuilding segment recorded a revenue of RM319.7 million for 3Q 2013, which was an increase of 137% from RM134.7 million achieved for 3Q 2012. The growth in shipbuilding revenue was largely due to progressive revenue recognition from the sales of Platform Supply Vessels, which contributed 43% of total shipbuilding revenue for the quarter. The vessel chartering segment recorded a revenue upsurge of 199% from RM7.2 million for 3Q 2012 to RM21.5 million for 3Q 2013. This was mainly due to the deployment of an additional Anchor Handling Towing Support Vessel and an Accommodation Vessel by the Group’s chartering operations.

Growing in tandem with its revenue, the Group’s gross profit increased by 125%, from RM38.7 million for 3Q 2012 to RM87.3 million for 3Q 2013. Gross profit margin for the shipbuilding segment held relatively steady at 23% while the vessel chartering segment clocked in a higher margin of 68% for 3Q 2013 compared to the previous corresponding quarter.

Other income was RM5.1 million lower for 3Q 2013 as compared to 3Q 2012 due mainly to higher net foreign exchange gain and net fair value gain on derivatives recorded in 3Q 2012. Finance cost increased from RM1.3million in 3Q 2012 to RM1.5 million in 3Q 2013 in tandem with the increase in loan and borrowings.

As a result, the Group’s net profit jumped 88% from RM31.6 million for 3Q 2012 to RM59.2 million for 3Q 2013.

Leong Seng Keat, Nam Cheong’s Group Chief Executive Officer said: “The year-to-date performance has been very promising as we achieved very strong growth. Through the deployment of sound business strategies, our order book is worth approximately RM1.7 billion and sales for the year now stands at 20 vessels, bringing us closer to beating last year’s record of 21 vessels. Our build to stock series of vessels continue to adequately cater to our customers’ requirements within shorter delivery lead times and this is testament to our good market foresight.”

For the nine months ended September 30, 2013, revenue grew 71% year-on-year to RM851.3 million from RM497.4 million in the corresponding period ended September 30, 2012.

With contributions from a stronger quarter, the shipbuilding and vessel chartering segments recorded revenue growth of 72% and 52% respectively for 9M 2013 when compared to 9M 2012. The shipbuilding segment contributed to the bulk 95% of the Group’s revenue for 9M 2013 while the vessel chartering segment accounted for the remaining 5%.

Correspondingly, for 9M 2013, net profit surged 56% to RM136.0 million from RM87.3 million for 9M 2012. With its full year profit for 2012 (“FY2012”) at RM136.6 million, the Group has almost matched last year’s four-quarter performance within 9M 2013.

In-line with a robust performance, the Group maintained a healthy balance sheet. Total assets grew by RM774.2 million while total liabilities increased by a comparably lower RM496.7 million for 9M 2013. Net gearing ratio was reduced to 0.12 times for 9M 2013 from the 0.38 times recorded at December 31, 2012.

Outlook

Industry experts are predicting global exploration and production spending for 2013 to reach a record figure of between US$625 and US$650 billion. As a result of the expected increase in E&P activity, there has been a jump in rig demand with 169 new rigs expected to be delivered between 2013 and 2015. This influx of new rigs is likely to spur demand growth for OSVs which are required to support operations.

Additionally, the global OSV fleet is ageing with more than 30% of vessels being of traditional build and in operation for over 25 years. In order to cope with the present-day operational demands, operators and charterers are looking to replace older vessels with modern vessels that are better-equipped to do their jobs more efficiently.

Closer to home in Malaysia, in-line with Petronas’ intended spending increase in the country’s oil and gas sector, OSV owners are looking to expand their fleet on the back of higher rates and improved utilisation. In view of its close relationships with customers and deep knowledge of the market, the Group is expected to be a key beneficiary of this trend.

Going forward, the Group expects to benefit from the increased investments made by oil majors. It continues to see demand for AHTS vessels, and other offshore vessels, especially in the shallow water region. The demand for small size AHTS vessels remains strong as offshore service providers replace older vessels with new and higher specification vessels. As one of the leading players in the construction of mid size PSVs, the Group will be able to benefit from the growing demands in this sector of the industry as well. The Group also continues to engage in businesses relating to top side maintenance, hook up and commissioning and exploitation of reserves from marginal fields.

Leong concludes: “Besides Malaysia, the global trends point towards a buoyant OSV market in the medium term. As a vessel builder with strong networks, good market reputation, with the ability to deliver high-quality vessels, we are in a good position to capitalise on the opportunities presented. We look to build on our past successes as we continue to conquer new heights of growth.”

[mappress]

November 12, 2013