Nam Cheong weighs Bursa, Oslo listings

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MALAYSIAN-CONTROLLED Nam Cheong Ltd, a leading global shipbuilder of offshore support vessels (OSVs), is considering listing on Bursa Malaysia and the Oslo Stock Exchange to enhance its brand and investor value while expanding its global reach.

The home-grown Miri-based marine offshore company, set up in 1968 by billionaire and former fishmonger, Datuk Tiong Su Kuok, was listed on the Stock Exchange of Singapore in May 2011 via a reverse takeover of a listed company there.

Nam Cheong owns and operates what it claims is one of the largest shipbuilding yards for OSVs in Malaysia. These include platform supply vessels, safety standby vessels, anchor handling tug supply vessels, accommodation work boats and barges.

“We are always exploring avenues to enhance shareholder value via increased profits, share trading liquidity, brand, reputation and investor perception. We would like to be the first Malaysian Singapore-listed company to have dual listings in Kuala Lumpur and Oslo,” Nam Cheong CEO Leong Seng Keat tells The Edge.

“In Malaysia, we are ready [for listing]. Weunderstand the listing requirements and how to comply with the rules. In Oslo, many big marine businesses are listed on the exchange — we have the global standing to join them.”

Nam Cheong prides itself on having grabbed about 15% of the global OSV market this year by delivering 30 of the world’s total OSV production, estimated at 150 to 200 vessels. Next year, it will deliver 35 OSVs.

Nam Cheong claims to have a 7% market share of OSVs in this region and is the second largest player east of the Suez Canal. It also claims to have a strong reputation in Southeast Asia, the Middle East, West Africa and the US for “its expertise and track record in constructing OSVs” primarily for shipowners and marine service operators.

Apart from orders from Malaysian firms, Nam Cheong has clinched orders from Mexico, Brazil, the Middle East, India and West Africa. It recently added Indonesia to the list.

Some of its longstanding customers are major oil and gas players such as Bumi Armada Bhd, Petra Perdana Bhd, Topaz, Borcos Shipping, Vroon, PetroVietnam, SapuraKencana Petroleum and Tidewater.

The company has benefited from the government’s “local-content” policy and Petroliam Nasional Bhd’s RM300 billion, five-year capital expenditure programme for 2011-2015. This programme has provided jobs for OSV operators, many of which are Nam Cheong clients.

Unsurprisingly, Nam Cheong derives about 50% of its revenue from Malaysia. Prior to 2005, all of its revenue came from the local market. Currently, its OSV market share in Malaysia is still high, at around 75%, according to its estimates.

Though Leong says Nam Cheong is not under pressure from the Malaysian authorities to list on Bursa, its recent fast growth may compel it to expedite this process. Indeed, its OSV orders shot up after the implementation of Petronas’ programme. Nam Cheong sold 13 OSVs in 2012 and 20 in 2013. This year, sales are expected to surge by 50% to 30 OSVs and are projected to hit a company-high of 35 next year. Nam Cheong has delivered over 100 vessels to local and international clients since 2007.

However, the company has not set itself a time frame for listing. “We are not in a rush. The listing is not meant to raise funds from the capital market, but is more for branding and improving liquidity and investor perception. We have done all that is needed [to raise funding for expansion] in Singapore.”

Leong says investors can expect a better set of financials this year and next, due to the sharp rise in the company’s OSV orders and deliveries.

In the first half of 2014, revenue rose 54% to RM786 million and profit after tax (PAT) jumped 75% to RM134 million. For the full financial year of 2014, revenue is expected to hit RM1.827 billion and PAT a company-high of RM266 million. According to a consensus of eight research houses compiled by Bloomberg, revenue will rise to RM2.181 billion and PAT to  RM308 million in FY2015.  

Leong says the company hopes to achieve an annual growth of 20% to 30% over the next five years. This is based on international forecasts that expect regional and global demand for shallow water OSVs to remain high despite the current softening in crude oil prices.

Despite rapid growth, Nam Cheong has a healthy balance sheet with a gearing ratio of 0.6%. Leong says the company is in a “comfortable position” to benefit from robust growth in the OSV segment “due to quality, reliability and track record” in the delivery of vessels and the confidence in the company of its repeat customers.

He attributes the success of Nam Cheong to the foresight and boldness of its 72-year-old founder and chairman, Tiong, who actively leads the group while engaging in other businesses.

Tiong, who is Fuchow and hails from Sibu in Sarawak, started Nam Cheong with a capital of about RM40 in 1968 to build boats in Miri. The market capitalisation of Nam Cheong now stands at more than RM2 billion.

“Datuk Tiong was key in propelling the company forward. In 2006, he decided to move our manufacturing model to build-to-stock (BTS) from build-to-order. This enables delivery to take place within six months rather than 18 to 24 months,” says Leong, who is a son-in-law of the chairman.

With BTS, Nam Cheong builds ahead of estimated demand. Leong says the company has a track record of selling all of its BTS vessels planned for any one year, even during the past financial crises.

“We have gone through many down cycles and demonstrated our ability to read market demand. Since 2007, we have had an impeccable track record of selling all pre-built vessels prior to delivery,” says Leong.

Due mainly to its BTS model and its outsourcing of shipbuilding to China at lower cost, Nam Cheong has consistently enjoyed a gross profit margin of 15%-20%, which is double that of conventional shipbuilding.

Leong says although Tiong controls 60% of Nam Cheong, he ensures the company is professionally run. Half of its board of directors comprises accountants and lawyers. The shipbuilder bagged two major awards in Singapore last year for “The Best Managed Board” and “The Most Transparent Company”.

With its charter business accounting for only 5% of its revenue, Tiong wants Nam Cheong to stay focused on being a specialised OSV builder. It has no plans to diversify into other segments, according to Leong.

 “Datuk Tiong is very conservative. We will not do what we don’t know well. He emphasises honesty and integrity in doing business. For example, in our charter business, we will not compete with our customers. We will only go into areas they are not in.”

This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.