RHB recommends ‘buy’ on Nam Cheong

[SINGAPORE] RHB has initiated “buy” on shipbuilder Nam Cheong , citing its young fleet of 36 vessels and long-term charter portfolio.

In a Tuesday (Mar 17) note, the brokerage also set a target price of S$2.05 for the stock, representing a 51.8 per cent upside to the company’s closing price on Monday.

The counter ended Wednesday at S$1.45, up 6.6 per cent or S$0.09.

RHB analyst Syahril Hanafiah said that Nam Cheong, which specialises in shipbuilding and repair, has a “competitive advantage” in the vessel chartering segment due to its relatively young fleet.

Its vessels have an average age of nine years, which is “significantly lower” than the industry average of about 14 to 16 years, he noted.

They could also provide cost savings as they would require less maintenance than older vessels, which are subject to more frequent and costly upgrades, he added. 

He also pointed out that Nam Cheong’s multi-year charter contracts with leading regional and international oil players will be among its key revenue drivers, providing “earnings visibility for the next two to three years”.

These agreements will generate a total contract sum equal to 2.5 years of the offshore marine group’s revenue, the analyst said.

Potential revival of shipbuilding segment

RHB highlighted that Nam Cheong’s shipbuilding contract wins in a tight offshore support vessel (OSV) market suggest the potential revival of its shipbuilding segment, as well as additional earnings upside.

OSVs are specialised ships designed to transport and provide logistical support. 

Syahril said the company can ride on the “growing appetite” for younger vessels amid constrained supply and an ageing global OSV fleet in the shipbuilding and chartering sector.

In its latest financial results released on Feb 27, Nam Cheong’s net profit for the second half of its 2025 financial year stood at RM189.6 million (S$61.8 million), up 17.4 per cent from a year earlier.

Revenue fell 8.4 per cent year on year to RM341.5 million, as vessel utilisation rates normalised from their 2024 peak.

RHB forecasts the shipbuilder’s recurring net profit to grow to RM202 million by December this year – a jump of about 22 per cent from RM165 million in December 2025, fuelled by long-term agreements and young fleet utilisation. 

Syahril also expects a compound annual growth rate of 15 per cent within the next three years, “driven by stable vessel utilisation and charter rates, gradual fleet expansion and balance sheet deleveraging”.

However, he projects margins for FY2027 and FY2028 to “slightly drop” due to a growing share of contributions from the lower-margin shipbuilding segment.

Meanwhile, he expects the group’s chartering segment to generate RM698.2 million in FY2026, making up 95 per cent of the group’s total revenue. For FY2027, he forecasts chartering revenue to grow 9 per cent to RM763 million.

He projects the shipbuilding segment to pull in RM36.9 million in revenue in FY2026, with that amount quadrupling to RM147.4 million in FY2027.

Contract renewal risks, energy-sector reliance

Noting that a substantial share of Nam Cheong’s earnings comes from long-term contracts, Syahril said the group may be unable to guarantee future profit if contracts are not renewed.

In addition, demand for its OSVs and charter rates relies heavily on the oil and gas sector. The analyst said this exposes the group to volatile crude oil and natural gas prices affected by geopolitical uncertainty, shifting production strategies from the Organization of the Petroleum Exporting Countries and its allies, as well as inconsistent demand patterns.

Nam Cheong also faces the hurdles of high capital expenditure in fleet renewal and expansion, including large upfront investments and exposure to fluctuating material and labour costs.

However, Syahril said the company is “unlikely to face material disruption” from the ongoing Petronas-Petroleum Sarawak dispute over oil and gas rights in Sarawak, despite being based in the East Malaysian state.

This is because Nam Cheong is well-positioned to support Sarawak’s expanding offshore activity, he noted, also citing the group’s established commercial ties with Petronas, which cover upstream and downstream operations.