Nam Cheong

Nam Cheong: UOB Kay Hian has result preview. House Expect 75% yoy profit growth and forecast 4Q12 net profit of RM46.3m, +75% yoy and +47% qoq. Growth will be driven byhigher rev from vessel sales, the bulk of which will be booked at the point of sale. In 4Q12, Nam Cheong sold 9 build-to-stock(BTS) vessels worth US$153m, compared with US$28m and US$103m in 4Q11 and 3Q12 respectively. Add that Nam Cheong has raised S$48.5m (RM121m) via the issuance of 190m new shares, representing9.9% of the existing issued share capital. 70-90% of the net proceeds will be used to finance shipbuilding projects and vesselchartering, while 10-30% will be used to refinance borrowings. As a result, expect net gearing to fall from 93.7% in 2012 to71.0% in 2013. House maintains BUY with higher TP of $0.34 (previously $0.30), implying 28.3% upside. Roll over valuation basis to2014, pegged at an unchanged target PE of 9.7x.Target PE is 1.3SD above peers’ longtermPE mean of 7.0x, which house think is justified given Nam Cheong’s dominant 50-75% market share in a high barrier-to-entrymarket.