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Why The World’s Geriatric Fleet Is Nam Cheong's Secret Weapon · Investor Exchange

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  At Investor Exchange, it's time for another podcast with your hosts, David and Brenda.
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  Welcome to The Debate. Today, we are dissecting a potential turnaround story
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  in the Malaysian offshore marine sector.
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  We're looking at Nam Chong Limited, or NCL. Based on a January 30th report from
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  CGS International, the company claims it's exiting survival mode and,
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  well, entering a new cycle of growth.
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  Yeah, new cycle is one of those phrases that always makes me a little nervous.
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  I mean, we're looking at a company that nearly collapsed under its own debt.
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  So the question isn't just about survival anymore, it's about genuine viability.
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  Is NCL truly an undervalued gem or the risks of the oil and gas sector still
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  just too high? And that's the debate.
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  I'm taking the position that NCL is a strong ad.
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  The market is pricing this like a distressed asset, But, you know,
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  the data just says otherwise.
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  And I'm the skeptic. I see the cleanup, I do, but I don't see the sustainable
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  growth yet. I think this could be a classic value trap.
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  Okay, well, let's start with the valuation because the numbers here are pretty stark.
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  NCL is trading at a forward price to earnings ratio, or PE, of just seven times.
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  For anyone not glued to a terminal, that just means the stock price is incredibly
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  low relative to the profit they're expected to make.
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  CGS has a target price of $1.87, which implies a massive 57% upside.
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  And why? Because the financial house is finally in order.
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  They've slashed their net gearing, which is essentially their debt-to-equity
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  ratio, from a suffocating 174% down to a manageable 53%. 3%. Hold on.
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  Hold on. You can't just applaud the debt reduction without looking at how they did it.
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  I mean, they're selling the furniture to pay the mortgage. They sold two platform
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  supply vessels, or PSVs, to pay down that debt.
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  These aren't just spare parts. These are income-generating assets that carry supplies to oil rigs.
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  And in FY25, their forecasted revenue actually dropped by 12%.
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  You can only sell your assets once to fix a balance sheet. That's a finite strategy.
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  See, I think you're misinterpreting that Ren and you drop. That wasn't a lack
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  of demand. It was strategic downtime.
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  They deliberately took vessels offline to upgrade them for lucrative long-term
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  charters, and it paid off.
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  64% of their fleet is now locked into long-term contracts. That's RM1.7 billion
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  in revenue secured just since late 2024.
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  They traded short-term spot market volatility for long-term cash flow stability.
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  Plus, you know, those asset sales saved them $3 million a year in interest payments.
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  That cash flow is directly to the bottom line.
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  Okay, stability is great, but you need utilization to make a profit.
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  Even with this so-called strategic downtime, their utilization rate,
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  the percentage of time their ships are actually working, dipped to roughly 65%.
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  That is dangerously low efficiency.
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  And we have to talk about the concentration risk. 80% of their fleet is in Malaysia.
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  They are effectively dependent on one major client, Petronas.
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  If oil prices wobble and Petronas cuts their capital expenditure,
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  NCL has nowhere else to go, does it?
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  Well, actually, I think the macro environment favors them precisely because
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  of the hardware. In shipping, age is everything.
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  Old ships break. They cost a fortune to insure and run.
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  NCL's fleet average is 9 years old. The global average is over 16.
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  So they have the youngest, most efficient steel in the water,
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  which commands better rates.
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  And they are adding, not just subtracting. They have six new vessels,
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  geotech ships and fast crew boats, coming online in FY26.
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  That is expected to add about RM75 million in annual revenue.
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  That assumes the market just absorbs that new capacity immediately.
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  But my biggest issue, really, is this shipbuilding wildcard that the whole bullish case relies on.
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  You're pricing in a full recovery of their shipbuilding arm,
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  yet NCL hasn't recognized external shipbuilding revenue since 2020.
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  But that's exactly where the opportunity is.
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  The global fleet is aging out. 20-year-old vessels are being scrapped.
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  We are entering a massive replacement cycle where operators have to buy new ships.
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  NCL is restarting its Miri shipyard. It's just sitting there, ready to go.
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  Management is already in active discussions for external orders.
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  If they sign even one third-party contract, the market suddenly realizes this
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  isn't just a charter company. It's a manufacturer again.
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  The stock re-rates instantly.
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  Active discussions don't pay the bills. I mean, come on.
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  We starting a dormant shipyard is a logistical nightmare with huge execution
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  risk. You need labor. You need supply chains. and capital.
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  You're asking investors to
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  pay today for a business segment that right now exists purely in theory.
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  So to summarize, I see a company that has successfully cleaned up its balance
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  sheet, owns a young fleet with locked-in cash flows, and offers what is basically
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  a free option on a shipbuilding recovery, all for a dirt-cheap valuation.
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  And I see a company that's shrank to survive. A company that's overexposed to
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  a single client in Malaysia, struggling with low utilization,
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  and relying on a shipbuilding revival that, frankly, just hasn't happened yet.
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  It really comes down to whether you believe that replacement cycle is real.
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  And that is all the time we have for today. Thanks for listening.
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  This content is intended to serve strictly and only as an informative,
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  independent, objective summary of recent events, and should in no way be interpreted,
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  construed, or relied upon by any party as inside information or financial advice.
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  You.