Singapore Stock Picks: Nam Cheong - BUY with a target price of SGD0.41). Upside Potential of 41 %)

Nam Cheong: SGD0.29 BUY (TP: SGD0.41) Record Quarterly Profit And Strong Guidance NCL posted a 3Q13 PATMI record of MYR58.7m (+86% y-o-y) – driven by its historic MYR1.7bn orderbook on hand, with shipbuilding gross margins surprising on the upside at 22.8% (2Q13: 17.3%). Thus, we increase our top-of-street FY13F/14F/15F estimates by 4/7/5% and raise our TP to SGD0.41 (from SGD0.39). One of our Top Picks, NCL combines 39% growth, 25% ROE, low 0.12x net gearing and healthy cashflow on a undemanding 7x FY14F P/E. • Strongest-ever quarter with better things to come. NCL’s bottomline beat our MYR50m preview estimate by MYR8.7m, as its 23% shipbuilding margin was even higher than our top-of-street forecast. While we expect a normalisation to the 18-20% range, margins should continue to enjoy support from higher-margin platform supply vessels (PSVs) and work-boats or -barges, which form >50% of expected future vessel sales by value. Our S-curve revenue model indicates that strong topline growth in the coming quarters (on its record MYR1.7bn orderbook) will continue to drive earnings growth. • A “happy” CNY dividend. Management remained coy on dividend guidance. We did detect a strong optimistic tone, with chairman Datuk Tiong Su Kouk expecting a “happy” dividend upon FY13 results being announced and a final dividend declaration during the Chinese New Year in CY14. Supported by its low 0.12x net gearing and healthy operational cash flow, we raise our payout ratio assumption to 25% from 20%, which translates into an attractive 3.1-4.3% yield from FY13F-15F. • Targeting a market share increase. NCL now has a shallow-water offshore support vessel (OSV) global market share of about 12%, up 10% from a year ago. Over the next three years, management sees room to improve on this, which we interpret to mean that a healthy growth rate is sustainable over the next 3-5 years. • Raise estimates, TP increased to SGD0.41. We raise our top-of-street FY13F/14F/15F estimates by 4/7/5% on the stronger margin outlook. This increases our TP to SGD0.41 (from SGD0.39), based on 10x blended FY13F/14F EPS. NCL remains one of our Top Picks for its 39% growth, 25% ROE, healthy cash flow and low 0.12x net gearing, for which investors are only paying 7x FY14F P/E. Maintain BUY