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Nam Cheong sees slowdown in OSV orders, Q1 earnings fall

Nam Cheong sees slowdown in OSV orders, Q1 earnings fall
Malaysia’s Nam Cheong is experiencing a slowdown in new OSV orders, particularly in Malaysia, and it looks to secure more order wins from West Africa, while its first quarter earnings have decreased.

The OSV market has been hit by lower charter rates and utilisation since the plunge in crude oil prices late last year, as oil majors slashed their expenditures on offshore oil and gas exploration and production.

Leong Seng Keat, ceo of Nam Cheong, said the company now needs to focus on delivering what the market can digest and the number of ships to be delivered this year is expected to reduced from previous years. The OSV builder delivered 24 vessels in 2014 and 20 in 2013.

Leong pointed out that the company continues to receive enquiries from West Africa for new PSVs. “No doubt there is an oversupply situation in the PSV sector, but in terms of enquiries it is still more than AHTS vessels,” he said.

He explained that most PSV enquiries are coming from “indigenous owners” as they look to own and operate new vessels due to the low newbuilding price. And even with lower charter rates, the significantly lower cost of vessel ownership today continues to attract new orders, despite the oversupplied market.

Meanwhile, Singapore-listed Nam Cheong has recorded lower earnings for its first quarter of 2015. Net profit was recorded at MYR39.32m, down 45% compared to MYR71.58m in the same period of last year.

Revenue also dropped by 20% year-on-year to MYR326.25m ($10.96m) due mainly to the fall in both the charter income and other income from an absence of gain on derivatives.

Leong added that the group’s build-to-stock vessels would also yield lower gross profit margin but he remained confident that the unsold assets would still secure buyers.

As at 31 March 2015, Nam Cheong’s 2015 shipbuilding programme saw six vessels sold and delivered, 10 sold and in progress and eight unsold. For 2016, 12 were sold and in progress while 18 are unsold.

The company has taken steps to guard against the risk of sitting on too many unsold assets by rescheduling its shipbuilding programme whenever appropriate, according to Chong Chung Fen, corporate finance manager.

Chong added that Nam Cheong has also diversified its buyer portfolio, where the percentage of sales into the Malaysian market has been trimmed to about 30% in 2014, while raising its market share in the Middle East, Indonesia and West Africa.

In the first quarter of this year, Nam Cheong secured two order wins worth $58m from its repeat customers in Singapore and the Middle East.

“Over the last month, oil prices have somewhat stabilised, at levels above $60,” Leong said.

“At these prices, Nam Cheong continues to have sufficient headroom in selling vessels to shallow water customers as most of them require oil prices to be in the range of $25 to $50 for operations and profitability to breakeven,” he added.