Buy (Maintained) Little Impact From Petronas Capex Cut

Dec-13 Jan-14 Apr-14 Jun-14 Aug-14 Oct-14 Vol m Corporate News Flash, Nam Cheong (NCL SP) Buy (Maintained) Energy & Petrochemicals - Oil & Gas Services Target Price: SGD0.61 Market Cap: USD538m Price: SGD0.34 Little Impact From Petronas Capex Cut Macro Risks Growth Value 0.51 0.46 0.41 0.36 0.31 0.26 70 60 50 40 30 20 10 Source: Bloomberg Avg Turnover (SGD/USD) Nam Cheong (NCL SP) Price Close Relative to Straits Times Index (RHS) 173 157 141 125 109 93 3.53m/2.76m Cons. Upside (%) 11.8 Upside (%) 82.1 52-wk Price low/high (SGD) 0.29-0.50 Free float (%) 42 Share outstanding (m) 2,098 Shareholders (%) SK Tiong Enterprise Sdn Bhd 27.3 Hung Yung Enterprise Sdn Bhd 15.2 Su Kouk Tiong 7.8 Share Performance (%) YTD 1m 3m 6m 12m Absolute 6.3 (15.2) (26.4) (14.1) 15.5 Relative 0.5 (17.5) (27.5) (15.8) 10.0 Shariah compliant Lee Yue Jer, CFA +65 6232 3898 yuejer.lee@sg.oskgroup.com Jesalyn Wong +65 6232 3872 jesalyn.wong@sg.oskgroup.com Maintain BUY and SGD0.61 TP (82% upside). Nam Cheong dived 16% yesterday on news of Petronas cutting its capex by 15-20% next year. However, the company s Malaysian/global customer split is now c.25/75%, down from c.50/50%, thus drastically reducing the impact. Petronas CEO has also reiterated the need to grow production and to increase reserves, both of which require vessels. Nam Cheong s outlook remains fundamentally unchanged. Only five of 25 vessels sold this year to Malaysian customers. Nam Cheong has been successful in diversifying its customer base. Of the c.110 vessels it has delivered since 2007, about 48 went to Malaysian customers, or c.44% in the last seven years. YTD, it has sold 25 vessels but only five (accounting for 30% of YTD sales in dollar-value terms) were sold to local customers, ie the split is now c.20-30% Malaysian customers and 70-80% to the rest of the world. As such, Nam Cheong is no longer as exposed to Petronas capex changes and the share price reaction yesterday looks extreme. Petronas reiterates need to increase oil reserves. Petronas CEO Tan Sri Dato' Shamsul Azhar Abbas said that it needs to invest in overseas projects and increase its oil reserves in order to maintain its growth, considering that current production declines by c.10% a year naturally. Petronas has an internal production growth target of 3-3.5% a year, according to our Malaysian oil and gas (O&G) analyst Kong Ho Meng. Our read-through is that upstream exploration and production activity will have to continue, indicating that low-cost sources such as conventional shallow-water fields will continue to generate order flow. Little risk of cancellations. In this environment, a key concern is order cancellations >80% of Nam Cheong s vessel sales are to customers with firm contract backing. Ironically, we see the risk of cancellations being higher for build-to-order players today, where customers would rather walk away from a 20% downpayment than take delivery of a vessel which may not see employment. A steal at 4-6x P/E. Nam Cheong is now trading at 6x/5x/4x FY14-16F P/Es, undervaluing its 16-60% earnings growth and 30% ROEs. Its industry position has been strengthening as it increases its global shallow-water market share, now c.15% of FY15F global deliveries. Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover (MYRm) 877 1,257 1,866 2,455 2,969 Reported net profit (MYRm) 137 206 311 391 452 Recurring net profit (MYRm) 137 193 311 391 452 Recurring net profit growth (%) 46.6 41.6 60.6 25.9 15.6 Recurring EPS (MYR) 0.07 0.09 0.15 0.19 0.22 DPS (MYR) 0.01 0.03 0.04 0.05 0.06 Recurring P/E (x) 12.3 9.5 6.0 4.7 4.1 P/B (x) 2.84 1.97 1.58 1.25 1.01 P/CF (x) 22.9 na na 7.6 12.8 Dividend Yield (%) 1.5 3.0 4.2 5.3 7.3 EV/EBITDA (x) 13.3 11.0 7.6 5.5 4.8 Return on average equity (%) 25.6 26.9 29.5 29.5 27.2 Net debt to equity (%) 39.4 52.1 55.5 34.6 27.1 Our vs consensus EPS (adjusted) (%) 1.0 19.9 29.1 See important disclosures at the end of this report Powered by EFA TM Platform 1

Additional Notes Figure 1: S-Curve revenue recognition model for shipbuilding programme 1/3 ID Delivery Status Price 2013 2014F 2015F 2016F by year (USD'000) 2013 1301 AHTS Delivered 32,000 32,000 1302 AHTS Delivered 11,900 1303 AHTS Delivered 11,283 8,349 1304 AHTS Delivered 11,500 9,200 1305 AHTS Delivered 11,500 9,775 1306 AHTS Delivered 11,283 8,349 1307 AHTS Delivered 12,500 12,500 1308 AHTS Delivered 12,500 12,500 1309 PSV Delivered 20,000 4,000 1310 PSV Delivered 19,500 19,500 1311 PSV Delivered 19,500 19,500 1312 PSV Delivered 20,010 16,808 1313 PSV Delivered 30,000 1314 PSV Delivered 33,400 3,340 1315 PSV Delivered 32,100 963 1316 PSV Delivered 19,500 15,588 1,950 1317 AWB Delivered 29,500 12,173 2,065 1318 AWB Delivered 29,500 19,175 1319 AWB Delivered 29,500 19,175 1320 AWB Delivered 27,800 2014 1401 AHTS Order Book 11,283 8,703 2,128 1402 AHTS Order Book 11,283 2,933 8,349 1403 AHTS Order Book 11,300 11,300 1404 AHTS Order Book 12,000 12,000 1405 AHTS Order Book 14,000 14,000 1406 AHTS Order Book 12,000 12,000 1407 AHTS Order Book 14,500 14,500 1408 AHTS Order Book 14,500 14,500 1409 PSV Order Book 31,800 31,800 1410 PSV Order Book 19,500 14,550 4,950 1411 PSV Order Book 20,500 15,450 5,050 1412 PSV Order Book 20,500 15,450 5,050 1413 PSV Order Book 30,000 24,000 6,000 1414 PSV Order Book 30,000 7,800 22,200 1415 PSV Order Book 30,000 6,000 24,000 1416 PSV Order Book 30,000 4,500 25,500 1417 AHTS Stock 14,500 14,500 1418 PSV Order Book 34,000 34,000 1419 AWB Order Book 29,500 26,550 2,950 1420 AWB Order Book 29,500 16,225 13,275 1421 MWV Order Book 29,000 24,650 4,350 1422 MWV Order Book 30,000 30,000 1423 PSV Stock 30,000 30,000 1424 PSV Stock 30,000 30,000 1425 ERRV Order Book 11,775 2,355 9,420 1426 ERRV Order Book 11,775 1,766 10,009 1427 ERRV Order Book 11,775 1,766 10,009 1428 AHTS BNI Order 6,120 5,508 612 1429 AHTS BNI Order 6,120 1,224 4,896 1430 AHTS BNI Order 6,120 1,224 4,896 Source: OSK-DMG See important disclosures at the end of this report 2

Figure 2: S-Curve revenue recognition model for shipbuilding programme 2/3 ID Delivery Status Price 2013 2014F 2015F 2016F by year (USD'000) 2015 1501 AHTS Stock 12,000 12,000 1502 AHTS Stock 12,000 12,000 1503 AHTS Stock 12,000 2,400 9,600 1504 AHTS Stock 12,000 12,000 1505 AHTS Stock 14,500 14,500 1506 AHTS Stock 14,500 14,500 1507 AHTS Stock 14,500 2,320 14,500 1508 AHTS Stock 14,500 14,500 1509 AHTS Order Book 14,500 1,740 12,760 1510 AHTS Order Book 14,500 1,305 13,195 1511 AHTS Order Book 14,500 12,760 1,740 1512 AHTS Order Book 14,500 2,900 11,600 1513 AHTS Order Book 14,500 435 14,065 1514 AHTS Stock 14,500 14,500 1515 AHTS Stock 14,500 14,500 1516 AHTS Stock 14,500 14,500 1517 AHTS Stock 14,500 14,500 1518 PSV Stock 21,000 21,000 1519 PSV Stock 21,000 21,000 1520 PSV Order Book 21,000 4,200 16,800 1521 PSV Order Book 21,000 3,150 17,850 1522 PSV Stock 30,000 30,000 1523 PSV Stock 30,000 30,000 1524 PSV Build to Order 32,500 1,300 23,075 8,125 1525 PSV Build to Order 32,500 17,875 14,625 1526 PSV Stock 30,000 27,900 2,100 1527 PSV Stock 30,000 25,500 4,500 1528 WB Stock 30,000 30,000 1529 WB Stock 30,000 30,000 1530 WB Stock 30,000 30,000 1531 WB Stock 30,000 30,000 1532 AWB Stock 30,000 30,000 1533 ERRV Build to Order 13,500 13,500 1534 ERRV Build to Order 13,500 2,025 11,475 1535 ERRV Build to Order 13,500 2,025 11,475 Source: OSK-DMG See important disclosures at the end of this report 3

Figure 3: S-Curve revenue recognition model for shipbuilding programme 3/3 ID Delivery Status Price 2013 2014F 2015F 2016F by year (USD'000) 2016 1601 AHTS LOI 16,500 14,850 1,650 1602 AHTS LOI 16,500 4,290 12,210 1603 AHTS LOI 16,500 16,500 1604 AHTS LOI 16,500 16,500 1605 AHTS LOI 16,500 4,290 12,210 1606 AHTS LOI 16,500 13,200 3,300 1607 AHTS LOI 16,500 2,640 13,860 1608 AHTS LOI 16,500 2,640 13,860 1609 AHTS LOI 16,500 16,500 1610 AHTS Option 16,500 16,500 1611 AHTS Option 16,500 16,500 1612 AHTS Stock 31,000 31,000 1613 AHTS Stock 31,000 31,000 1614 PSV Stock 20,000 3,200 16,800 1615 PSV Stock 20,000 3,200 16,800 1616 PSV Stock 30,000 30,000 1617 PSV Stock 30,000 30,000 1618 PSV Stock 30,000 30,000 1619 PSV Stock 30,000 30,000 1620 PSV Stock 30,000 27,900 2,100 1621 PSV Build to Order 32,500 32,500 1622 PSV Build to Order 32,500 32,500 1623 PSV Stock 32,000 32,000 1624 AWB Stock 29,500 4,720 24,780 1625 AWB Stock 29,500 4,720 24,780 1626 AWB Stock 29,500 3,540 25,960 1627 AWB Stock 29,500 29,500 1628 AWB Stock 29,500 29,500 1629 MWV Stock 28,000 4,480 23,520 1630 MWV Stock 28,000 3,360 24,640 1631 MWV Stock 28,000 2,520 25,480 1632 AHTS Stock 16,500 16,500 1633 ERRV Build to Order 13,500 13,500 1634 ERRV Build to Order 13,500 540 11,610 1,350 1635 ERRV Build to Order 13,500 540 11,610 1,350 1636 AWB Build to Order 42,000 1,680 29,820 10,500 1637 AWB Build to Order 42,000 23,100 18,900 2013 2014F 2015F 2016F Model Revenue (USD'000) 404,850 548,629 743,100 902,274 USD-MYR 3.02 3.23 3.21 3.21 Model Revenue (MYR'000) 1,221,637 1,771,192 2,385,648 2,896,660 Source: OSK-DMG *Note: Nam Cheong has not released its FY16F shipbuilding programme. The company has not disclosed the number of vessels sold on letters of intent (LOI) due to commerciality reasons. The LOIs may not be converted to firm contracts and their vessel delivery dates may not all fall in FY16F. Our table above is based on our best forecast. See important disclosures at the end of this report 4

Financial Exhibits Profit & Loss (MYRm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover 877 1,257 1,866 2,455 2,969 Cost of sales (688) (993) (1,484) (1,954) (2,394) Gross profit 189 264 382 501 576 Gen & admin expenses (50) (66) (68) (88) (101) Operating profit 139 199 314 414 475 Operating EBITDA 144 212 329 430 493 Depreciation of fixed assets (6) (13) (15) (17) (18) Operating EBIT 139 199 314 414 475 Net income from investments 3 3 8 10 10 Other recurring income 5 9 19 20 20 Interest expense (8) (11) (22) (40) (39) Exceptional income - net - 13 - - - Pre-tax profit 139 212 318 404 467 Taxation (2) (6) (8) (12) (14) Minority interests - (1) 0 (1) (1) Profit after tax & minorities 137 206 311 391 452 Reported net profit 137 206 311 391 452 Recurring net profit 137 193 311 391 452 Cash flow (MYRm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Operating profit 139 199 314 414 475 Depreciation & amortisation 6 13 15 17 18 Change in working capital (60) (419) (362) (164) (326) Other operating cash flow 10 10 26 30 30 Operating cash flow 95 (197) (6) 296 198 Interest paid (17) (34) (22) (40) (39) Tax paid (5) (0) (8) (12) (14) Cash flow from operations 74 (231) (37) 244 145 Capex 2 (36) (45) (30) (31) Other investing cash flow (8) (81) - - - Cash flow from investing activities (6) (117) (45) (30) (31) Dividends paid (9) (26) (79) (79) (98) Proceeds from issue of shares - 119 - - - Increase in debt 145 401 459 50 (150) Other financing cash flow (4) (1) (0) - - Cash flow from financing activities 132 493 380 (29) (248) Cash at beginning of period 27 216 362 660 846 Total cash generated 199 145 298 186 (134) Forex effects (12) 5 - - - Implied cash at end of period 215 366 660 846 712 See important disclosures at the end of this report 5

Financial Exhibits Balance Sheet (MYRm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total cash and equivalents 216 362 660 846 712 Inventories 454 751 1,017 1,070 1,312 Accounts receivable 452 635 920 1,211 1,464 Other current assets 29 51 51 51 51 Total current assets 1,151 1,799 2,648 3,178 3,539 Tangible fixed assets 145 290 320 333 346 Total other assets 17 90 90 90 90 Total non-current assets 161 380 410 423 436 Total assets 1,313 2,179 3,058 3,601 3,975 Short-term debt 155 242 701 751 601 Accounts payable 257 381 569 749 918 Other current liabilities 0 5 5 5 5 Total current liabilities 413 628 1,275 1,505 1,524 Total long-term debt 294 609 609 609 609 Other liabilities 13 4 4 4 4 Total non-current liabilities 307 613 613 613 613 Total liabilities 720 1,241 1,888 2,118 2,137 Share capital 370 488 488 488 488 Retained earnings reserve 231 411 643 956 1,310 Other reserves (9) 39 39 39 39 Shareholders' equity 592 938 1,170 1,483 1,837 Minority interests - 1 0 1 1 Other equity - 0 0 0 0 Total equity 592 939 1,170 1,483 1,838 Total liabilities & equity 1,313 2,179 3,058 3,601 3,975 Key Ratios (MYR) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Revenue growth (%) 44.6 43.5 48.4 31.6 21.0 Operating profit growth (%) 36.7 43.5 57.9 31.7 14.9 Net profit growth (%) 46.6 50.5 51.0 25.9 15.6 EPS growth (%) 46.6 37.7 50.2 26.0 15.6 Bv per share growth (%) 24.9 44.1 24.8 26.7 23.9 Operating margin (%) 15.8 15.8 16.8 16.8 16.0 Net profit margin (%) 15.6 16.4 16.6 15.9 15.2 Return on average assets (%) 12.0 11.8 11.9 11.7 11.9 Return on average equity (%) 25.6 26.9 29.5 29.5 27.2 Net debt to equity (%) 39.4 52.1 55.5 34.6 27.1 DPS 0.01 0.03 0.04 0.05 0.06 Recurrent cash flow per share 0.04 (0.11) (0.02) 0.12 0.07 See important disclosures at the end of this report 6

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Nam Cheong (NCL SP) SWOT Analysis The world s largest offshore supply vessel (OSV) builder by vessels delivered Partnerships with yards make for an asset-light and capacity-flexible model, helping it to weather lean times The letter of authorisation system in Malaysia protects Nam Cheong s key market New competition from China s merchant vessel builders ASEAN countries are rapidly boosting exploration and production (E&P) capex The industry is currently in a major upswing due to massive rig orders The company s build-to-stock model is deemed risky by investors, although this is mitigated by its record orders on hand, asset-light strategy and dominant industry position in Malaysia P/E (x) vs EPS growth P/BV (x) vs ROAE 20 60% 4 35% 18 16 14 12 52% 44% 36% 28% 4 3 3 31% 26% 22% 10 20% 2 18% 8 6 4 2 12% 4% -4% -12% 2 1 1 13% 9% 4% 0-20% 0 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Nam Cheong is the largest OSV builder in the world with a 12% share of the global shallow-water OSV market. It specialises in building small-mid AHTS, PSVs, workboats and accommodation barges. It also operates a fleet of standby vessels and a number of OSVs in conjunction with its partners. See important disclosures at the end of this report 7

0.34 0.34 0.35 0.39 0.45 0.58 0.58 na 0.29 0.30 0.33 0.33 0.35 0.35 0.37 0.38 0.41 0.45 0.48 0.48 0.52 0.53 0.58 0.58 0.61 Nam Cheong (NCL SP) Recommendation Chart 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 Recommendations & Target Price Price Close 0.00 Dec-09 Mar-11 Jun-12 Sep-13 Buy Neutral Sell Trading Buy Take Profit Not Rated Note: Nam Cheong listed via RTO in May 2011. Previous stock prices pertain to Eagle Brand Holdings and are irrelevant Source: OSK-DMG, Bloomberg Date Recommendation Target Price Price 2014-11-12 Buy 0.61 0.42 2014-10-19 Buy 0.58 0.40 2014-09-29 Buy 0.58 0.44 2014-08-20 Buy 0.58 0.48 2014-08-08 Buy 0.58 0.47 2014-08-05 Buy 0.53 0.47 2014-07-01 Buy 0.53 0.41 2014-05-15 Buy 0.52 0.38 2014-03-31 Buy 0.48 0.34 2014-02-26 Buy 0.48 0.34 Source : OSK-DMG, Bloomberg See important disclosures at the end of this report 8

RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the c orporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of 1 December 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) - As of 1 December 2014, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) - DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693 RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12 th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908 DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777 RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai 20041 China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633 Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) 23 969 161 Fax: +(855) 23 969 171 RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok 10500 Thailand Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999 9