Upcoming Rise of Newbuilds: NAM CHEONG's Latest Move Boosts BUY Case For $1.25 Target

THE CONTEXT

• Year-to-date, Nam Cheong (86 cents) has performed well with a 107% gain, yet there's about 31% upside still to DBS' target price of $1.25.

At 8X FY26PE, the target looks conservative rather than over-optimistic for a market leader.

• Nam Cheong (market cap: S$343 million) has ways to go to achieve higher recognition for being the largest Offshore Support Vessel (OSV) provider in Malaysia with a cleaned-up balance sheet.

Furthermore, in an industry that is facing an acute vessel shortage, Nam Cheong is a high-operating-leverage play on an inevitable OSV-building upcycle.

• In the meantime, it is capturing high charter rates (gross margins hover at 50%) and securing long-term contracts.

• Despite these fundamentals, it trades at at a 50-60% discount to peers like Marco Polo Marine (12x) and Pacific Radiance (8x).

Read more in DBS' update ....

Excerpts from DBS report
Analyst: Ho Pei Hwa

• Divestment of a 4,000 DWT mid-sized PSV for USD20.5mn (c.RM83.2mn), crystallising an estimated c.RM50mn gain in FY25

NAM CHEONG
Share price: 86 c	Target: $1.25

• Transaction underscores disciplined capital recycling and highlights that vessel book values are at least 50% below current resale values

• Proceeds will be redeployed into shipbuilding and fleet expansion, positioning Nam Cheong to capture the next OSV newbuild and charter upcycle.

• Re-rating catalysts in sight – OSV newbuild contracts, re-deployment of two workboats and one AHTS; Reiterate BUY and TP SGD1.25

Divesting a PSV, in line with capital recycling and fleet reprofiling initiatives.
Nam Cheong has entered into a sale agreement to divest a 4,000 DWT mid-sized platform supply vessel (PSV) to an established Vietnam-based offshore and marine group for USD20.5mn (c.RM83.2mn), with delivery scheduled in Dec-2025.

The transaction forms part of its broader fleet reprofiling strategy, aimed at aligning its asset base with evolving offshore marine demand and safety requirements, as well as maintaining capital recycling discipline.

Based on our back-of-the-envelope calculation, the sale could bring about c.RM50mn gains for FY25, at the higher end of recent years’ divestment gains of RM30-45mn per annum.

While we do not include divestment gains in our core profit estimate (~RM178mn for FY25), the sale has two significant financial implications:

1) it unlocks the value of the vessel, which contributes c.RM7mn per annum based on our estimate, effectively bringing forward the income for the next seven years; and

2) its vessels are deeply undervalued on book, at least 50% below market resale value.

Rise of newbuilding activities on the horizon.
Net proceeds from the disposal will be primarily redeployed into Nam Cheong’s shipbuilding activities, either to construct vessels for external sale or to support expansion of its own OSV fleet to grow recurring charter income.

By monetising older tonnage at an opportune time and recycling capital into newer builds, Nam Cheong is well positioned, with its comparatively younger fleet, to benefit from tightening global OSV supply, ageing regional fleets and stricter safety and efficiency standards, while leveraging its in-house shipyard capabilities to ride the upcoming newbuild wave.

Management emphasises that the OSV newbuild market is approaching a turning point, with a highly aged fleet of around 15 years requiring renewal.

Ho Pei Hwa, analystWe expect potential OSV newbuild contracts and the deployment of the two workboats and an idling AHTS (due to cancellation of a Japanese offshore wind project) in early 2026 to drive a re-rating of the stock.

Nam Cheong remains one of our top picks for 2026.

Reiterate BUY and TP SGD1.25 (8x FY26 PE).

Full report here.

See also: NAM CHEONG: DBS Research initiates coverage, calling company an "Undervalued Gem, Ready to Set Sail"