Analyst: Nam Cheong's Net Profit Poised to Double Over the Next Two Years

Malaysia's Nam Cheong – the largest builder of offshore support vessels in the country – is poised to see its net profit double over the next two years, a research report published by DMG & Partners Research Monday shows.

The company's profit growth will be driven primarily by strong vessel sales, the research report stated. Nam Cheong posted a net profit of $30 million (MYR93 million) in 2011. DMG & Partners projected that the company will end this fiscal year with a net profit of $47 million (MYR147 million) and 2013 with a net profit of $58 million (MYR182 million).

Nam Cheong enjoys a substantial advantage over its global competitors due to its existing build-to-stock business model. This means that the company builds its vessels ahead of firm orders, and sells the vessels at a premium due to the short time to delivery. In Malaysia, the build-to-stock business model is well-suited for Nam Cheong as the country operates under a "letter of authorization" system. 

"This means that a Malaysian builder can, for example, bid for a Petronas contract without having a vessel on-hand and with just a letter of authorization from Nam Cheong," DMG & Partners Research's Analyst Lee Yue Jer explains to Rigzone in a telephone interview on Tuesday. 

"Upon securing the Petronas contract, the builder then commits to the vessel. Most Malaysian builders prefer to work with Nam Cheong when pursuing oil and gas contracts in the country as Nam Cheong always has a ready inventory of vessels," Lee added. 

Nam Cheong delivers between 12 to 21 vessels each year. The company's current building program includes anchor handling tug supply vessels (AHTS), platform supply vessels (PSV), and work accommodation work barges (AWBs). Shipbuilding accounts for 95 percent of the company's 2012 fiscal year net profit forecast.

DMG & Partners Research's report follows Nam Cheong's announced contact wins on August 22, 2012. The company announced on that day that it secured contracts wins totaling $44 million for one PSV and two AHTs. The PSV will be deployed to West Africa and the AHTs to South America and the Middle East. All of the three vessels are constructed in the company's outsourced shipyards in China, and they are scheduled to be delivered between 4Q 2012 to 1Q 2013, a company spokesperson from Nam Cheong told Rigzone in a telephone interview.

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