Over the past 12 months, the Straits Times Index (SGX: ^STI) has gained a rather pedestrian 4% or so to 3261 points currently. But, that doesn’t mean other shares in the market have not had a great year. In fact, there’s one particular share that’s up by 47% since 1 July 2013. At its current price of S$0.39, it’s also just a whisker away from its 52-week high of S$0.40. Folks, meet Nam Cheong (SGX: N4E). Headquartered in Kuala Lumpur, Malaysia, Nam Cheong is currently the largest offshore marine group in the country that specializes in the building…
Over the past 12 months, the Straits Times Index (SGX: ^STI) has gained a rather pedestrian 4% or so to 3261 points currently. But, that doesn’t mean other shares in the market have not had a great year. In fact, there’s one particular share that’s up by 47% since 1 July 2013. At its current price of S$0.39, it’s also just a whisker away from its 52-week high of S$0.40.
Folks, meet Nam Cheong (SGX: N4E). Headquartered in Kuala Lumpur, Malaysia, Nam Cheong is currently the largest offshore marine group in the country that specializes in the building of Offshore Support Vessels (“OSVs”). The bulk of Nam Cheong’s revenue (around 90%) comes from its shipbuilding business and according to the company’s webpage, it currently has 28 vessels under its shipbuilding programme which are scheduled to be completed by 2014.
Besides its main business, Nam Cheong also has ancillary vessel chartering operations in which it currently has a fleet of 14 vessels that are ready to be chartered out on bareboat or time charters.
A controversial business model
Scepticism may exist regarding Nam Cheong’s unique build-to-order and build-to-stock business models (it’s easy to see how risks may be bountiful in a build-to-stock business model; vessels may be built and left idling around if the company’s forecasts of demand turns out to be wrong).
However, the company has managed to turn this into a competitive advantage with its expertise in accurately identifying vessels that would be in demand in the future. The company would then use its unique foresight to build-to-stock the appropriate vessels ahead of time. In fact, the accuracy of Nam Cheong’s foresight manifests itself in how it has managed to clinch sales deals for its build-to-stock vessels before they are even completed.
In large part due to the above, Nam Cheong has showcased some spectacular results over the past few years. For instance, between 2013 and 2010, revenue and profit increased at a compounded annual rate of 18.4% and 19.9% respectively. This happened despite the warnings given by the Malaysian government on a potential oversupply-situation for the industry in the country.
Growth at Nam Cheong does not seem to be slowing down either; in the first quarter of 2014 quarterly revenue soared 73.5% year-on-year to RM407.3 million while profit basically doubled to RM71.1 million.
Last Monday, Nam Cheong announced that it had sold two accommodation work barges (AWBs) worth about US$84 million (S$105 million) to a repeat customer Perdana Petroleum Berhad; Perdana has an option to buy another two vessels under the contract terms.
Nam Cheong’s upbeat about this positive development, saying: “The two AWBs will be the first-of-its-kind in Malaysia when delivered, and the largest accommodation vessels to be built by Nam Cheong”.
Elsewhere, the company had also recently kick-started its share-buyback programme on 16 June by buying back a whooping 5.5 million shares at S$0.385 each. That equates to 0.262% of Nam Cheong’s total shares outstanding. Interestingly, this is the firm’s first share buyback after it completed a reverse takeover in 2011.
At its current price, Nam Cheong is valued at only 9 times its trailing earnings and sports a small dividend yield of 1.27%. Its tiny dividend yield – by way of comparison, the Straits Times Index has a yield of around 2.7% – is typical of smaller companies that are focused on retaining profits for growth rather than distributing the spoils as dividends to shareholders.
Over the long run, great companies will often see their share prices continue to break new ground as long as their business fundamentals remain intact. That is what investors should really be looking into instead of using just a share’s price movement to determine when to buy or sell.
Is Nam Cheong one of those great companies that can continually make new highs in its share price due to an improvement in its business? That’s something for each investor to decide individually and as it is, only time will tell.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.