Nam Cheong is evidently rebuilding its business, reporting RM25 million in operating profit for 1H2019.
And this reflects improved fundamentals after an industry downturn which necessitated a restructuring of Nam Cheong's debts. The current profit driver is a new core business which is gaining momentum -- chartering vessels to oil majors in Malaysia, particularly Petronas. The vessels include Anchor Handling Tug Supply vessels and Platform Supply Vessels. Nam Cheong used to be big in building offshore support vessels. There was zero revenue contribution in 1H2019 from that business segment as there was no vessel scheduled for delivery. |
Some takeaways from the 1H2019 results:
|
RM m |
1HFY19 |
1HFY18 |
Change |
|
Revenue |
104.6 |
135.7 |
(23%) |
|
Gross Profit |
32.4 |
17.9 |
81% |
|
Finance cost |
18.5 |
27.4 |
(32%) |
|
Other income |
15.0 |
593.6* |
-98% |
|
Profit after tax |
3.3 |
557.2 |
n.m. |
|
* RM557.5 million was due to a one-off waiver of debt |
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1. Revenue: Ship chartering was all Nam Cheong did in 1H2019, and that brought in RM104.6 million.
This is a big jump from the RM36.9 million from ship chartering. (1H2018 also had the contribution of shipbuilding amounting to RM98.8 million).
The revenue boost came partly from an expanded fleet (34 vessels as at 30 June 2019 versus 23 vessels as at 30 June 2018).
Two vessels were added in 2Q19.
Another booster was the higher fleet utilisation rate q-o-q: It rose from 40% in 1Q2019 to 73% in 2Q2019.
♦ Nam Cheong's share price (0.7 cent) is trading below the 1.4 cent exercise price for a rights issue in Sept 2018. ♦ The executive chairman, Tan Sri Datuk Tiong Su Kouk, subscribed for his rights entitlement, paying RM50 million. His resulting total stake in the company is 61.5%. ♦ The rights issue raised S$22 million in net proceeds. |
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2. 3Q to be even stronger: There is a seasonality to ship chartering for oil majors in the region.
1Q is the slowest (owing to the monsoon period), picking up in 2Q and gaining momentum in 3Q before easing off in 4Q.
3. Net profit: This amounted to RM3.3 million in 1H2019, a shrunken pie mainly a result of RM18.5 million in finance costs eating into the gross profit of RM32.4 million.
The RM18.5 million finance cost is 32% lower y-o-y following the Group’s debt restructuring scheme.
The restructuring converted RM1.6 billion of short-term borrowings to RM1.0 billion of term loans, ie a reduction of RM629 million of borrowings.
There's another relief: No partial repayment is required in 2019 and 2020 as repayments are scheduled for 2021 to 2024.
4. Orderbook: Nam Cheong's orderbook stood at RM295 million as at end-1Q2019.
After RM74.7 million was recognised as revenue in 2Q19, the orderbook was more than replenished.
It stood at RM307 million (including RM141 million option to extend) as at end-2Q2019.
For more info, see Nam Cheong's 2Q19 financial statement here.
