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Nam Cheong's Q3 2025 80% Profit Collapse Explained · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to The Deep Dive, the show where we, well, we take a deep stack of quarterly
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  reports, financial statements, and operational notes, and we try to pull out
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  what really matters for you.
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  And today our mission is pretty crucial. We're analyzing the financial results
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  of Nam Chian Limited, that's NCL,
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  a major player in the Malaysian Offshore Support Vessel, or OSV, market.
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  We've got the third quarter and the nine-month figures for 2025.
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  And it's a challenging mission because NCL just came out of a huge financial overhaul.
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  They wrapped up this massive debt restructuring scheme, the DRMA, back in early 2024.
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  Right. So just comparing 2025 to 2024, it's like comparing apples to oranges.
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  If the oranges were on fire last year, you have to normalize everything.
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  You absolutely do. If you, as a listener, just glance at the headline net profit,
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  you're going to see a collapse. I mean, a truly severe drop that might cause
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  a bit of a panic. But it's not real.
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  It's not. It's almost entirely due to non-cash, one-off accounting gains they booked last year.
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  So our focus today is to isolate the true operational health.
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  What's their core profitability? How are they managing their debt?
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  And, you know, what's the real outlook for their market? Exactly.
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  We've got the revenue figures, the profit drivers, their cash management strategy,
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  and the big market forces at play.
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  And the summary for you up front is things are pretty stable,
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  but it's all masked by some very loud accounting noise.
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  Let's jump right in, starting with the operational reality, the top line.
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  So when we look at NCL's business, they technically have two segments, right?
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  Shipbuilding and vessel chartering. They do, on paper. But in practice,
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  right now, they're really a one-segment company.
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  Precisely. For the third quarter and across the whole nine months of 2025,
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  the shipbuilding segment.
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  It registered zero revenue. Nothing. Not a thing. No vessels were scheduled for delivery or sale.
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  So every single ringgit they brought in came from chartering their fleet of OSVs.
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  Okay, so let's zoom in on that. The nine-month revenue for 2025 was RM449 million.
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  That's actually down 12% from the year before. It is.
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  And that 12% year-over-year drop is pretty easy to explain. It was basically
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  driven by lower average vessel utilization.
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  So fewer boats working on average. Exactly. But that's where you have to be careful.
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  You can't just stop at the nine-month number. You have to look at the current
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  momentum, the quarter-over-quarter trend. And that's where the picture gets a lot better.
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  It does. For Q3 2025, revenue is RM170.8 million.
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  Now, that's still down 15% from a really high point in Q3 of last year.
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  But it's up 6% from the quarter just before, from Q2. Right.
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  And that sequential growth tells us the company is moving in the right direction.
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  And what drove that 6% jump? The reports are clear.
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  It was the start of new long-term charter contracts.
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  So utilization is starting to climb again. It is. It hits 70% in Q3,
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  which is a little up from 68% in Q2.
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  And what's really fascinating here is that they're not just chasing any work.
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  They're chasing stability.
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  They've managed to place 60% of their entire fleet under these long-term contracts. 60%?
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  Wow. That must be absolutely critical for them after the restructuring.
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  They need that predictable income, not the ups and downs of the spot market.
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  That's it, exactly. That 60% is their baseline. It guarantees the cash flow,
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  which is, you know, the oxygen they need right now.
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  It shows they're focused on a solid recovery.
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  Not just chasing the highest possible short-term rates. Okay, that makes sense.
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  So moving on from income, let's get to those scary-looking headlines on profitability.
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  This is where we need to unpack that accounting distortion. Yes,
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  this is the critical moment in the deep dive.
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  If you look at the nine-month profit before tax, the PBT, it fell 77%.
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  77. From over RM740 million down to about RM170 million, net profit dropped
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  80%. If you didn't know the backstory, You'd assume the company was fundamentally failing.
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  But it wasn't. It was just benefiting from some, I guess, accounting magic last
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  year. Why was 2024 so inflated?
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  It was all because of that debt restructuring scheme. When it was finalized
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  in March 2024, NCL recorded this enormous non-cash gain.
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  They had a line item, other income, of over RM500 million. And most of that was what?
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  RM393 million of it was a non-cash gain on the waiver of debt.
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  So the banks just wrote off a huge chunk of what NCL owed them.
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  And under accounting rules, that waived debt gets booked as a profit for the
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  year. That's essentially it.
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  It's like wiping the slate clean. And that reduction in liabilities shows up
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  as a huge one-time income boost.
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  It was windfall in 2024 that, of course, isn't there in 2025.
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  Which makes the year-over-year comparison completely useless for judging how
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  the business is actually doing. Totally meaningless.
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  So the only way to get a clear view is to look at what we'd call core profit. Right.
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  So if we strip out that massive debt waiver and any other one-offs,
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  what does the real operational picture look like?
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  The picture looks, well, pretty stable and healthy.
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  Core profit for the nine months was RM133.7 million. And here's the key part.
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  That's only down about 12 percent from the previous year's core profit.
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  And that 12 percent drop, it lines up perfectly with the 12 percent drop in
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  revenue we talked about.
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  It does. It confirms that their operational efficiency and their profit margins, they held up.
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  They're still getting good prices for their services. Speaking of margins,
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  their gross profit margin was 51% for the nine months.
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  I mean, that is incredibly strong. It suggests they have real pricing power.
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  They do. Now, there were a couple of areas of cost pressure.
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  First, selling and administrative expenses, they went up about 15%,
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  mainly due to an increase in staff costs.
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  Which could just be a necessary investment, you know, rebuilding the team after
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  restructuring. What was the other one?
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  The other was a big jump in other operating expenses that was driven by a specific
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  one-off litigation settlement they paid to a supplier.
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  So again, it's a cleanup cost from the past, not a reflection of current operations.
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  That makes sense. And what about that slight dip in the margin just in the third quarter?
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  It fell by about 1.4 percentage points.
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  Ah, yes. That was due to some extra vessel operating costs. They had some scheduled
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  maintenance activities, some dry docking.
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  Which is actually a good sign, isn't it? It means there's investing in the fleet.
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  It's a very positive sign. They're making sure the assets are in top shape,
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  which is what you have to do to win those valuable long-term contracts.
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  And that is a perfect transition.
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  Let's pivot to the balance sheet. After all that restructuring,
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  how are they actually managing their debt and their cash?
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  So the data here shows a really systematic and successful deleveraging process.
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  Compared to the end of 2024, their total liabilities are down 12 percent.
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  That's a reduction of over RM 82 million.
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  It is. And the biggest driver was a huge 41 percent drop in trade and other
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  payables. They're basically just aggressively paying off their suppliers and vendors.
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  Oh, they're cleaning up the books, making good on their promises.
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  Now, what's interesting is even with liabilities going down,
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  their total assets actually went up by 4%. How does that work?
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  This is where we see their strategy in action. Yeah.
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  That increase in assets was mostly driven by two things. First,
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  property, plant, and equipment went up. Which is the maintenance spending we just talked about.
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  Exactly. The dry docking, the retrofitting, it's not just an expense.
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  It increases the value and the useful life of the vessels. So it becomes an asset.
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  They're capitalizing the maintenance. So what was the second thing you mentioned?
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  A big jump in inventories. Right. Inventories were up by almost RM 100 million.
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  And for a shipbuilder, this isn't, you know, widgets on a shelf.
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  The source in Clarified, this is mostly vessels under construction.
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  Ah, so that's a forward-looking move. They're investing in future assets that
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  could be worth a lot if the market keeps tightening.
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  It looks that way. It's a very strategic investment. So if they're paying down
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  debt and investing in assets, where did all that cash come from?
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  Well, they put their existing cash reserves to work.
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  Cash and bank balances fell sharply, down 56 percent, or about RM71 million.
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  So they used their savings to fund the cleanup. Precisely.
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  The net cash used in financing activities for the nine months was RM75 million,
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  and that was almost all scheduled repayment of borrowings.
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  It's a very clear picture. So, steady operating income is funding the planned repayment of debt.
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  They're doing exactly what they said they would do after the DRMA.
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  It's a very orderly recovery, built on the back of that resilient chartering business.
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  Hmm. Which brings us perfectly to the outlook.
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  What are the big forces supporting all of this? Well, what stands out to me
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  is that it's not just NCL's own smart moves.
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  The whole market seems to be working in their favor, especially with the supply
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  constraints on these OSVs. That's the key leverage point.
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  The local OSV market is facing a significant supply shortage,
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  and it looks structural, not cyclical.
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  Meaning it's not going away anytime soon. Right. If you look at the global OSV
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  fleet, the average age is now 15 to 16 years old. a lot of these vessels are
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  getting to the point where they need to be replaced.
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  But nobody's building new ones, or not enough anyway. Exactly.
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  New vessel construction is still really subdued. The banks and financiers are just.
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  They're still very cautious after getting burned so badly during the last big
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  oil slump. So you have this classic bottleneck.
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  Demand is there, but supply is shrinking because the financing to build new
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  ships just isn't flowing.
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  And in Malaysia, you also have the cabotage policies, which restrict foreign
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  vessels, adding another layer of protection for local players like NCL.
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  So what does that all mean for charter rates?
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  The forecast is that OSV charter rates will remain well supported all the way through 2026.
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  This is crucial for NCL's ability to keep that, you know, 51% gross margin.
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  And they're in a prime position to benefit since they have the largest and probably
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  most advanced fleet in Malaysian waters.
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  And their strategy reflects that. They're still aiming to increase their long-term
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  contract coverage to 70% of the fleet, up from the 60% they have now.
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  It's about locking in those strong future revenues. And what about the shipbuilding
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  side, the part that's been quiet for so long? They're seeing a steady stream
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  of inquiries for new builds, but they're being very clear that they're going
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  to be disciplined and selective.
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  Post-restructuring, it's all about long-term value, not just filling up the order book.
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  So if I can just summarize the key takeaways for you, the listener,
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  NCL's foundation is solid.
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  That headline, 80% profit drop. It was just a misleading echo from last year's
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  debt waiver. A ghost in the machine. Exactly.
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  Underneath all that noise, their core chartering business is humming along with
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  great margins, and they're locking in more and more stable long-term contracts.
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  They're using that cash to pay down debt and invest in their fleet,
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  which positions them perfectly for a market where there just aren't enough boats
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  to go around. And what's so fascinating is that this structural shortage is
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  really being enforced by the bank's caution about financing new ships.
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  NCL's strong cash flow is letting them navigate this, but the whole industry
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  is being constrained, which raises a really important long-term question.
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  Given that the global OSV fleet is getting older and older, I mean,
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  15 to 16 years on average, how long can that caution from the financiers last
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  before this structural shortage becomes so acute that it forces a massive,
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  necessary, and probably very expensive wave of new build projects?
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  And who is going to end up paying for them? It's the definition of a ticking clock.
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  The pressure is just going to keep building until that financing dam finally breaks.
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  Something for Eden Mullover. Thank you for joining us on The Deep Dive.
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  Music.