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To Buy Nam Cheong On Its Malaysian Credentials?
Contract win from repeat customer, Perdana Petroleum, proves that Nam Cheong continues to be a major player in the Malaysian offshore support sector.
Two Accomodation Work Barges (AWBs) are to be built. These vessels will be the first of its kind and the largest built by Nam Cheong.
Majority of Nam Cheong’s order book will be realised in FY15. Investors should hold the counter for a longer period to fully benefit from this.
Nam Cheong proved itself to be a major player in the offshore support sector in Malaysia through its recent contract win. The company clinched the contract for two Accommodation Work Barges (AWBs) from a repeat customer, Perdana Petroleum.
The two AWBs will be built under the build-to-order (BTO) model and have the ability to accommodate 500 men each. This will be the first of its kind in Malaysia and the largest of AWBs to be ever built by Nam Cheong.
An AWB. As its name suggests, provides accommodation to workers supporting the offshore development.
Previously, Perdana ordered three AWBs but were significantly smaller with all of them having a capacity of fewer than 300 men.
This contract will lift Nam Cheong’s order book to RM1.5 billion as the firm will be paid US$84 million for the two AWBs. Perdana will have an option to purchase another two AWBs from Nam Cheong.
These AWBs will be built in one of Nam Cheong’s subcontracted shipyards in China and will be expected to be delivered to Perdana in 2016. This contract not only proves Nam Cheong’s ability in shipbuilding but also its dominance in the domestic offshore sector in Malaysia.
The Malaysian offshore sector is expected to remain robust in the current FY. With Nam Cheong’s strong reputation among domestic players, more orders are expected to come its way.
Looking at the order book, the bulk recognition of Nam Cheong’s profit will be realized in FY15. Therefore, investors should considering keeping the counter for a longer period to fully benefit from the strong order book.
Analysts from Maybank Kim Eng Research maintained its “Buy” call for Nam Cheong and gave them a target price of $0.45. The target price is pegged to 1.9 times of the forecasted P/B (Price/Book) of FY15.
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