TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<div>While we are long term holders of Google, we think this quarter’s report was the most disappointing of large cap tech, and given Google’s crowded long status, we would be inclined to short Google vs. the under owned Amazon over the next few quarters.</div><div><div><div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div></div></div>

While we are long term holders of Google, we think this quarter’s report was the most disappointing of large cap tech, and given Google’s crowded long status, we would be inclined to short Google vs. the under owned Amazon over the next few quarters.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Google: Mediocre Results, Mediocre Disclosures

<div>We  have been longtime <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> bulls who recognize that entry points over the last decade have been few and far between. We are buyers of Amazon post 4Q19. </div><div><div><div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div></div></div>

We  have been longtime Amazon.com Inc (AMZN US) bulls who recognize that entry points over the last decade have been few and far between. We are buyers of Amazon post 4Q19. Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

<div>
<div></div>
</div>
<div>
We  have been longtime <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> bulls who recognize that entry points over the last decade have been few and far between. We think Amazon’s coming 4Q20 print next Thursday, 1/30 represents an excellent time to re-engage on the long side on 2019’s FAANG laggard.
<div class="content-highlight">
Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.
</div>
</div>





We  have been longtime Amazon.com Inc (AMZN US) bulls who recognize that entry points over the last decade have been few and far between. We think Amazon’s coming 4Q20 print next Thursday, 1/30 represents an excellent time to re-engage on the long side on 2019’s FAANG laggard.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.



Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Janus Analysis

Thematic (Sector/Industry)

We have previously summarised <a href="https://www.smartkarma.com/insights/inevitability-of-a-gold-backed-blockchain-currency?magic-token=" target="_blank" rel="noopener">why currencies fail</a>, and find it hard to fathom why a Gold backed blockchain (either physical or ETF) is not yet operational, and encourage anyone (even if you disagree with the thesis) to read <a href="https://www.smartkarma.com/insights/the-blockchain-delusion-a-mostly-bearish-investment-thesis?magic-token=" target="_blank" rel="noopener">William Keating’s </a><a href="https://www.smartkarma.com/insights/the-blockchain-delusion-a-mostly-bearish-investment-thesis?magic-token=" target="_blank" rel="noopener">Smartkarma Original</a> as a realistic background to the sector.  We examine the probable inevitability of a Digital Gold (DG) platform emerging in the near future, which would, for all intents and purposes, resolve divisibility and transportability issues associated with bullion.   We submit a platform similar to that of a current debit card, transactions would be in the local currency utilising a digital gold platform, 100% backed by physical.  The “DG” business model, would effectively mimic that of a central bank vault, swapping gold internally to different parties, within a single location.
The fact that Gold trades like all other currencies, moving up and down, will not (we believe) be an inhibitor for many, and an attraction to some with a macroeconomic view.  Although we have previously published exploratory thoughts, we will embellish additional details utilising the Oxford protocol framework.

We have previously summarised why currencies fail, and find it hard to fathom why a Gold backed blockchain (either physical or ETF) is not yet operational, and encourage anyone (even if you disagree with the thesis) to read William Keating’s Smartkarma Original as a realistic background to the sector.  We examine the probable inevitability of a Digital Gold (DG) platform emerging in the near future, which would, for all intents and purposes, resolve divisibility and transportability issues associated with bullion.   We submit a platform similar to that of a current debit card, transactions would be in the local currency utilising a digital gold platform, 100% backed by physical.  The “DG” business model, would effectively mimic that of a central bank vault, swapping gold internally to different parties, within a single location.
The fact that Gold trades like all other currencies, moving up and down, will not (we believe) be an inhibitor for many, and an attraction to some with a macroeconomic view.  Although we have previously published exploratory thoughts, we will embellish additional details utilising the Oxford protocol framework.

Revised & Embellished Digital Gold (DG) Model

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2019-11/Nam%20Cheong.jpg' alt='Nam Cheong' />
 </figure>
 <div class='content-caption'>Nam Cheong</div>
<!DOCTYPE html PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN" "http://www.w3.org/TR/REC-html40/loose.dtd">
<html><body>
Engineer Leong Seng Keat is a graduate of the school of hard knocks. 
The CEO of SGX-listed Offshore Support Vessel (OSV) builder Nam Cheong Ltd believes that the road to success is usually paved with struggles, obstacles and failures, all of which are the best teachers of life's lessons. 
"I always tell youngsters: Don't be afraid of challenges - it's part and parcel of the path to success. Learn to cultivate a disruptive mindset that enables you to spearhead innovation, and survive in an ever-changing world," he added. 
Nearly three decades ago, Leong himself was a positive force for change. After graduating from Australia's Chisholm Institute of Technology in 1990 with a Bachelor of Engineering degree, he began his career in the information technology sector. 
"In the mid-90s, IT was entering a new era - moving from centralised IBM Mainframes to distributed computing systems like Microsoft Windows, and the early days of the Internet in Malaysia were shaped by startups like ours," he recalled. 
"At that time, money wasn't a focus. It was about what we could create and the problems we could solve. All we wanted to do was to change the world and help people - it was a great feeling!" 
Fast-forward 15 years later, and Leong found himself out of a job after selling his online gaming firm to an investor. "That was when my father-in-law - who happens to be Nam Cheong's Executive Chairman - suggested I do some 'serious' work for a change," he grinned, referring to Sarawak-born fishmonger-turned-tycoon Tan Sri Datuk Tiong Su Kouk. 
Leong joined Nam Cheong as Executive Director in 2005, and was tasked with expanding the Group's presence in international markets. But the transition from technology to shipbuilding proved to be a rough one. 
"I found it totally mundane at first. Everything was governed by regulations and compliance, which was a 180-degree switch from the World Wide Web, where you set the rules or write them as you go along," he said. 
But Leong soldiered on, putting his international sales and marketing skills to work. Nam Cheong derived 100% of its RM50 million turnover from the domestic Malaysian market in 2005, but by 2014, it had grown its revenues to RM1.9 billion, with overseas markets contributing 70%. Leong was appointed Nam Cheong's Chief Executive Officer in 2013. Plug and Play 
The Group's history dates back to the 1960s, when it began building fishing vessels in Malaysia. Today, Kuala Lumpur-headquartered Nam Cheong is the country's largest OSV builder, constructing sophisticated and environmentally friendly OSVs equipped with the latest technology for use in the oil services, as well as offshore oil and gas exploration and production industries. 
Shipbuilding accounts for more than 90% of Group revenue, and its portfolio ranges from Anchor Handling Tug Supply Vessels and Platform Supply Vessels to Maintenance Work Vessels, Accommodation Barges and Safety Standby Vessels. 
To expand further in the offshore marine industry, Nam Cheong began vessel chartering operations in 2007. It now has a fleet of more than 30 vessels that are mainly chartered out by way of time charters. 
Listed on Singapore Exchange in May 2011, the Group has a current market capitalisation of about S$60 million. In the year-to-date, the stock has generated a total return of 33.3%, outperforming total returns of 9.7% and 11.2% for the benchmark Straits Times Index (STI) and broader FTSE ST All-Share Index respectively. 
Nam Cheong constructs vessels on both a build-to-order and build-to-stock basis. Its ability to accurately identify in-demand vessels, and construct a series of build-to-stock vessels ahead of time, sets the Group apart from the competition. 
"Right from the start, I wanted Nam Cheong to be the Dell of the shipbuilding industry - to have a Lego system where we would plug and play vessel parts according to client specifications, building the asset that customers want even before they ordered it," Leong said. "This would drive down construction and engineering costs, as well as improve our delivery times." 
At first, his vision met with a wall of resistance and criticism. The industry's prevailing belief was that shipyards could only build what was commissioned - nothing more, nothing less. Over time, it dawned on customers that Nam Cheong's strategy made better financial sense. 
"The question that clients faced was: Should I wait two years for my custom-built vessel? Or should I take delivery of Nam Cheong's vessel - which meets about 80%-90% of my requirements - and start making money sooner?" Leong pointed out. 
"Once they started punching numbers into their calculators, they realised we were right. It doesn't make economic sense to place an order for a US$15-US$20 million asset, and take delivery of it four years later, only to find that the market has turned - how do you justify that investment?" Reality Bites 
Over the past decade, Nam Cheong has delivered more than 140 vessels, thanks largely to its build-to-stock strategy. "This has been instrumental in establishing the fundamentals of the Group - it's our key value proposition. During good times, we can deliver faster than anyone else and generate more orders than our peers." 
Nonetheless, this business model carries a high-risk stigma. "Only a handful of shipbuilders are willing to follow in our footsteps," Leong admitted. "Many still harbour the same fear - what if customers don't buy?" 
But reality bites, and a sector downturn is no respecter of business models, he pointed out. 
"When the market collapses, it doesn't choose the build-to-order or build-to-stock vessel - everyone gets hit equally when banks start pulling lines and orders are cancelled. Over the last five years, tell me, which oil and gas business model has done better than another?" he asked. 
"When the water recedes, all ships will be grounded, regardless whether it's a tanker or a tug boat." 
Five years after the onset of the industry slump, challenges still abound. "The debt that was created during the boom years, and the subsequent impairment of assets when the downturn hit - that's a major problem for many. Until you restructure that debt or the market recovers, you're in a bind," he said. 
"And even if your debt is restructured, can your income service your interest and operating costs? That's what most players are still struggling with." 
In September 2018, Nam Cheong successfully concluded its debt restructuring exercise through the implementation of schemes of arrangement and strong shareholder participation in its rights issue. This enabled the Group to restructure previously unsustainable liabilities and boost its net tangible assets. 
With a clean slate, Nam Cheong is now focused on diversifying income streams and growing its chartering revenues. It was named the Fastest Growing Offshore Support Vessel Company by International Finance Awards 2019. 
"We remain anchored by our three-pronged strategy in our next phase of rebuilding - expanding our vessel chartering segment, further diversifying our service-based income streams by exploring offshore construction contracts, and evolving our shipbuilding capabilities to cover a broader scope of offshore marine-related services, including fabrication work," Leong said. 
In this respect, the Group has been fortunate. "Our ship chartering rates are slightly higher than international rates because of Malaysia's cabotage policy, and our build-to-stock strategy allows us to price our vessels more cheaply, as the element of standardisation caps our manufacturing costs." 
As a result of the country's cabotage policy, preference is given to Malaysian-owned vessels over foreign-owned vessels of similar specification in the event of competing bids. The Money Trail 
While Leong offers no crystal ball for the industry's prospects, his focus is on "following the money". 
"The key thing we track is the capex and opex of the oil majors. From there, we can gather how much they are investing. Over the last two years, we've only seen about 2% increase in capex and opex, and for next year, the forecasts are for roughly 5% growth." 
Definitely, the industry is in the throes of the post-peak oil era, following the emergence of newer technologies such as renewable energy and electric vehicles, he said. "Those boom days are gone. But is the oil and gas business a sunset industry? In my opinion, as long as we have work, it's not a sunset industry." 
The human race still has a voracious appetite for fossil fuels, which are relatively difficult to replace, despite the push towards harnessing wind, solar and hydro power sources. "We are the beast," he added. 
"And if you study the investments by oil majors, you will see that 90% of their budgets remains focused on fossil fuels, and only 10% is allocated to alternative energy. As I said, follow the money!" 
According to IHS Markit, global upstream oil and gas industry spending is expected to increase by 7%-8% this year. In Malaysia, Petronas has planned higher capital expenditure of RM50 billion for 2019, up from RM46.8 billion last year. 
Another indicator of a rebound in industry activity is the operation of jack-up rigs in the country - 20 have been mobilised this year, compared with five in 2017, Leong noted. 
The OSV segment has also seen increased activity - the North Sea, Saudi Arabia, India, Brazil and Mexico have issued more charter contracts. "While majority of the charters are short term, and rates remain depressed, there're definitely pockets of growth, like in Malaysia, where daily charter rates have recovered more than 30% from lows in 2017," he added. 
Utilisation rates for Nam Cheong's vessels are also holding well. "Those levels have risen steadily to over 60% this year from around 50% in 2017, which reflects a tightening in the market." 
He believes the upturn in the OSV chartering sector - at least in Malaysia's case - has already arrived. "When utilisation rates reach 70% or more, we're pretty much back to the good old days." 
However, the OSV shipbuilding industry remains depressed, due to the overhang of excess capacity. "We don't expect a recovery in the global market before 2021. Many operators are collapsing or in the midst of restructuring, and all these tonnages need to be absorbed before new vessels can be built." 
No doubt work can be all-consuming, but when the 54-year-old isn't scouring his inbox for details of new tenders and contracts, he can be found amongst his camera equipment, experimenting with aperture, ISO and shutter speed in his photos. 
Family time is also a priority. "Our society has evolved into worshipping the philosophy of 'Take care of Thyself', and it's easy to lose sight of what it means to be a family," said the father of three daughters and a son, aged 17 to 29. 
Problem-solving is another touchstone. "I tell my kids everything in life is a problem, and the key is to solve each one, through careful study and analysis," Leong said. 
"I always ask, 'Why is it like this?' and 'How did we get here?' Such questions are helpful in dissecting the issues, and eventually finding the right solutions or opportunities."

 

Nam Cheong Ltd

Headquartered in Kuala Lumpur, Malaysia, Nam Cheong is Malaysia's largest offshore support vessel (OSV) builder, owning and operating one of the largest shipbuilding yards for OSVs in the country. The Group focuses on OSV chartering, as well as the construction and engineering of sophisticated, environmentally friendly OSVs equipped with the latest technology for use in the offshore oil and gas exploration and production and oil services industries. It has delivered over 140 vessels since 2007, which include anchor handling towing supply vessels, platform supply vessels, accommodation work boats and accommodation work barges. The Group is also expanding its vessel chartering operations, which has grown to make up 41% of its FY2018 revenue base. 

The company website is: <a href="http://edm.sgx.com/a/hBd10EpB86%24MfB90QlfAABR54dQ/link7">www.namcheong.com.my</a>. 
Click <a href="http://edm.sgx.com/a/hBd10EpB86%24MfB90QlfAABR54dQ/link8">here</a> for the company's StockFacts page. 
For the three months ended 30 Sept 2019 financial results, click <a href="http://edm.sgx.com/a/hBd10EpB86%24MfB90QlfAABR54dQ/link9">here</a>.

 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations. 
For previous editions of kopi-C: the Company brew, please click <a href="http://edm.sgx.com/a/hBd10EpB86%24MfB90QlfAABR54dQ/link10">here</a>.   
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to <a href="mailto:jennifer.tan@sgx.com">jennifer.tan@sgx.com</a>.
</body></html>


      
    
    Nam Cheong


Engineer Leong Seng Keat is a graduate of the school of hard knocks.  
The CEO of SGX-listed Offshore Support Vessel (OSV) builder Nam Cheong Ltd believes that the road to success is usually paved with struggles, obstacles and failures, all of which are the best teachers of life's lessons.  
"I always tell youngsters: Don't be afraid of challenges - it's part and parcel of the path to success. Learn to cultivate a disruptive mindset that enables you to spearhead innovation, and survive in an ever-changing world," he added.  
Nearly three decades ago, Leong himself was a positive force for change. After graduating from Australia's Chisholm Institute of Technology in 1990 with a Bachelor of Engineering degree, he began his career in the information technology sector.  
"In the mid-90s, IT was entering a new era - moving from centralised IBM Mainframes to distributed computing systems like Microsoft Windows, and the early days of the Internet in Malaysia were shaped by startups like ours," he recalled.  
"At that time, money wasn't a focus. It was about what we could create and the problems we could solve. All we wanted to do was to change the world and help people - it was a great feeling!"  
Fast-forward 15 years later, and Leong found himself out of a job after selling his online gaming firm to an investor. "That was when my father-in-law - who happens to be Nam Cheong's Executive Chairman - suggested I do some 'serious' work for a change," he grinned, referring to Sarawak-born fishmonger-turned-tycoon Tan Sri Datuk Tiong Su Kouk.  
Leong joined Nam Cheong as Executive Director in 2005, and was tasked with expanding the Group's presence in international markets. But the transition from technology to shipbuilding proved to be a rough one.  
"I found it totally mundane at first. Everything was governed by regulations and compliance, which was a 180-degree switch from the World Wide Web, where you set the rules or write them as you go along," he said.  
But Leong soldiered on, putting his international sales and marketing skills to work. Nam Cheong derived 100% of its RM50 million turnover from the domestic Malaysian market in 2005, but by 2014, it had grown its revenues to RM1.9 billion, with overseas markets contributing 70%. Leong was appointed Nam Cheong's Chief Executive Officer in 2013.   Plug and Play  
The Group's history dates back to the 1960s, when it began building fishing vessels in Malaysia. Today, Kuala Lumpur-headquartered Nam Cheong is the country's largest OSV builder, constructing sophisticated and environmentally friendly OSVs equipped with the latest technology for use in the oil services, as well as offshore oil and gas exploration and production industries.  
Shipbuilding accounts for more than 90% of Group revenue, and its portfolio ranges from Anchor Handling Tug Supply Vessels and Platform Supply Vessels to Maintenance Work Vessels, Accommodation Barges and Safety Standby Vessels.  
To expand further in the offshore marine industry, Nam Cheong began vessel chartering operations in 2007. It now has a fleet of more than 30 vessels that are mainly chartered out by way of time charters.  
Listed on Singapore Exchange in May 2011, the Group has a current market capitalisation of about S$60 million. In the year-to-date, the stock has generated a total return of 33.3%, outperforming total returns of 9.7% and 11.2% for the benchmark Straits Times Index (STI) and broader FTSE ST All-Share Index respectively.  
Nam Cheong constructs vessels on both a build-to-order and build-to-stock basis. Its ability to accurately identify in-demand vessels, and construct a series of build-to-stock vessels ahead of time, sets the Group apart from the competition.  
"Right from the start, I wanted Nam Cheong to be the Dell of the shipbuilding industry - to have a Lego system where we would plug and play vessel parts according to client specifications, building the asset that customers want even before they ordered it," Leong said. "This would drive down construction and engineering costs, as well as improve our delivery times."  
At first, his vision met with a wall of resistance and criticism. The industry's prevailing belief was that shipyards could only build what was commissioned - nothing more, nothing less. Over time, it dawned on customers that Nam Cheong's strategy made better financial sense.  
"The question that clients faced was: Should I wait two years for my custom-built vessel? Or should I take delivery of Nam Cheong's vessel - which meets about 80%-90% of my requirements - and start making money sooner?" Leong pointed out.  
"Once they started punching numbers into their calculators, they realised we were right. It doesn't make economic sense to place an order for a US$15-US$20 million asset, and take delivery of it four years later, only to find that the market has turned - how do you justify that investment?"   Reality Bites  
Over the past decade, Nam Cheong has delivered more than 140 vessels, thanks largely to its build-to-stock strategy. "This has been instrumental in establishing the fundamentals of the Group - it's our key value proposition. During good times, we can deliver faster than anyone else and generate more orders than our peers."  
Nonetheless, this business model carries a high-risk stigma. "Only a handful of shipbuilders are willing to follow in our footsteps," Leong admitted. "Many still harbour the same fear - what if customers don't buy?"  
But reality bites, and a sector downturn is no respecter of business models, he pointed out.  
"When the market collapses, it doesn't choose the build-to-order or build-to-stock vessel - everyone gets hit equally when banks start pulling lines and orders are cancelled. Over the last five years, tell me, which oil and gas business model has done better than another?" he asked.  
"When the water recedes, all ships will be grounded, regardless whether it's a tanker or a tug boat."  
Five years after the onset of the industry slump, challenges still abound. "The debt that was created during the boom years, and the subsequent impairment of assets when the downturn hit - that's a major problem for many. Until you restructure that debt or the market recovers, you're in a bind," he said.  
"And even if your debt is restructured, can your income service your interest and operating costs? That's what most players are still struggling with."  
In September 2018, Nam Cheong successfully concluded its debt restructuring exercise through the implementation of schemes of arrangement and strong shareholder participation in its rights issue. This enabled the Group to restructure previously unsustainable liabilities and boost its net tangible assets.  
With a clean slate, Nam Cheong is now focused on diversifying income streams and growing its chartering revenues. It was named the Fastest Growing Offshore Support Vessel Company by International Finance Awards 2019.  
"We remain anchored by our three-pronged strategy in our next phase of rebuilding - expanding our vessel chartering segment, further diversifying our service-based income streams by exploring offshore construction contracts, and evolving our shipbuilding capabilities to cover a broader scope of offshore marine-related services, including fabrication work," Leong said.  
In this respect, the Group has been fortunate. "Our ship chartering rates are slightly higher than international rates because of Malaysia's cabotage policy, and our build-to-stock strategy allows us to price our vessels more cheaply, as the element of standardisation caps our manufacturing costs."  
As a result of the country's cabotage policy, preference is given to Malaysian-owned vessels over foreign-owned vessels of similar specification in the event of competing bids.   The Money Trail  
While Leong offers no crystal ball for the industry's prospects, his focus is on "following the money".  
"The key thing we track is the capex and opex of the oil majors. From there, we can gather how much they are investing. Over the last two years, we've only seen about 2% increase in capex and opex, and for next year, the forecasts are for roughly 5% growth."  
Definitely, the industry is in the throes of the post-peak oil era, following the emergence of newer technologies such as renewable energy and electric vehicles, he said. "Those boom days are gone. But is the oil and gas business a sunset industry? In my opinion, as long as we have work, it's not a sunset industry."  
The human race still has a voracious appetite for fossil fuels, which are relatively difficult to replace, despite the push towards harnessing wind, solar and hydro power sources. "We are the beast," he added.  
"And if you study the investments by oil majors, you will see that 90% of their budgets remains focused on fossil fuels, and only 10% is allocated to alternative energy. As I said, follow the money!"  
According to IHS Markit, global upstream oil and gas industry spending is expected to increase by 7%-8% this year. In Malaysia, Petronas has planned higher capital expenditure of RM50 billion for 2019, up from RM46.8 billion last year.  
Another indicator of a rebound in industry activity is the operation of jack-up rigs in the country - 20 have been mobilised this year, compared with five in 2017, Leong noted.  
The OSV segment has also seen increased activity - the North Sea, Saudi Arabia, India, Brazil and Mexico have issued more charter contracts. "While majority of the charters are short term, and rates remain depressed, there're definitely pockets of growth, like in Malaysia, where daily charter rates have recovered more than 30% from lows in 2017," he added.  
Utilisation rates for Nam Cheong's vessels are also holding well. "Those levels have risen steadily to over 60% this year from around 50% in 2017, which reflects a tightening in the market."  
He believes the upturn in the OSV chartering sector - at least in Malaysia's case - has already arrived. "When utilisation rates reach 70% or more, we're pretty much back to the good old days."  
However, the OSV shipbuilding industry remains depressed, due to the overhang of excess capacity. "We don't expect a recovery in the global market before 2021. Many operators are collapsing or in the midst of restructuring, and all these tonnages need to be absorbed before new vessels can be built."  
No doubt work can be all-consuming, but when the 54-year-old isn't scouring his inbox for details of new tenders and contracts, he can be found amongst his camera equipment, experimenting with aperture, ISO and shutter speed in his photos.  
Family time is also a priority. "Our society has evolved into worshipping the philosophy of 'Take care of Thyself', and it's easy to lose sight of what it means to be a family," said the father of three daughters and a son, aged 17 to 29.  
Problem-solving is another touchstone. "I tell my kids everything in life is a problem, and the key is to solve each one, through careful study and analysis," Leong said.  
"I always ask, 'Why is it like this?' and 'How did we get here?' Such questions are helpful in dissecting the issues, and eventually finding the right solutions or opportunities."

 

Nam Cheong Ltd

Headquartered in Kuala Lumpur, Malaysia, Nam Cheong is Malaysia's largest offshore support vessel (OSV) builder, owning and operating one of the largest shipbuilding yards for OSVs in the country. The Group focuses on OSV chartering, as well as the construction and engineering of sophisticated, environmentally friendly OSVs equipped with the latest technology for use in the offshore oil and gas exploration and production and oil services industries. It has delivered over 140 vessels since 2007, which include anchor handling towing supply vessels, platform supply vessels, accommodation work boats and accommodation work barges. The Group is also expanding its vessel chartering operations, which has grown to make up 41% of its FY2018 revenue base. 

The company website is: www.namcheong.com.my.  
Click here for the company's StockFacts page.  
For the three months ended 30 Sept 2019 financial results, click here.

 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file  kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.  
For previous editions of kopi-C: the Company brew, please click here.    
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to jennifer.tan@sgx.com.



Nam Cheong Charts Steady Course as Industry Rebounds 

United States

International Business Machines Corporation (IBM) provides computer solutions through the use of advanced information technology. The Company's solutions include technologies, systems, products, services, software, and financing. IBM offers its products through its global sales and distribution organization, as well as through a variety of third party distributors and resellers.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

International Business Machines (IBM US)

Google: Mediocre Results, Mediocre Disclosures

While we are long term holders of Google, we think this quarter’s report was the most disappointing of large cap tech, and given Google’s crowded...

Aaron Gabin

Amazon: AWS-Some

We have been longtime Amazon.com Inc (AMZN US) bulls who recognize that entry points over the last decade have been few and far between. We are...

Aaron Gabin

Amazon: Return of the King

We have been longtime Amazon.com Inc (AMZN US) bulls who recognize that entry points over the last decade have been few and far between. We...

Aaron Gabin

Revised & Embellished Digital Gold (DG) Model

We have previously summarised why currencies fail, and find it hard to fathom why a Gold backed blockchain (either physical or ETF) is not yet...

Gaius King

Nam Cheong Charts Steady Course as Industry Rebounds

Engineer Leong Seng Keat is a graduate of the school of hard knocks. The CEO of SGX-listed Offshore Support Vessel (OSV)...

Singapore Exchange Ltd (SGX)

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)