Nam Cheong posts Q3 net profit plunge, defers deliveries

NAM Cheong, Malaysia's largest builder of offshore support vessels, reported on Friday that its net profit for the third quarter ended Sept 30, 2015, plunged to RM6,000 (S$1,940) from RM126.3 million a year ago.

Its bottomline was hit by the 69 per cent tumble in revenue to RM189.3 million, down RM429.3 million from RM618.6 million a year ago.

Revenue from the shipbuilding segment decreased by 69 per cent to RM182.1 million, from RM595.1 million a year ago. This was mainly due to the completion and delivery of two units of vessels in Q3 2015 compared with six units of vessels a year ago.

Vessel chartering revenue also recorded a decrease of 70 per cent to RM7.1 million, mainly due to a lower utilisation rate.

Gross profit decreased by 86 per cent to RM21.1 million, in tandem with lower revenue. Overall gross profit margin was reduced to 11 per cent.

Other income increased to RM3.1 million from RM1.1 million a year ago due to interest income of RM2.0 million in Q3 2015. Selling and administrative expenses increased by RM1.2 million due to the fair value loss on derivatives of RM2.3 million in Q3.

Net gearing ratio increased to 0.97 times from 0.42 times in FY2014 mainly due to the decrease in cash and bank balances, coupled with an increase in loans and borrowings.

In light of the weak outlook for the offshore and marine sector, Nam Cheong anticipates that the progress of vessel sales and shipbuilding will remain slow.

It has deferred the schedule of deliveries of its vessels currently under construction, both at customers' requests and also as part of its own initiative.

The group has a gross order book of about RM1.4 billion as at Sept 30, 2015, due for deliveries up till 2016.

OCBC Investment Research analyst, Low Pei Han, has kept a sell call on the Malaysian shipbuilder, with its S$0.17 a share fair value estimate under review.

Ms Low said the Q3 results has brought the group's net profit for the nine months to end Sept to RM50.0 million. This is only 33 per cent of the research house's full year estimate.

"Results were below ours and the street's expectations,'' Ms Low said. "With this disappointing set of results, we will look to revise our estimates lower.''

She warned that there could be more downside in Nam Cheong's share price ahead due to lacklustre earnings and a weak outlook that would affect vessel values.