Fast growing OSV provider Nam Cheong has a positive outlook for its vessel chartering business, as offshore drilling and development activities increase in Malaysia
Driven by an uptick in offshore and marine sector activity in Malaysia over the last two years, Singapore exchange-listed OSV builder and provider Nam Cheong Ltd has seen its vessel chartering revenue increase by more than 100% per annum. Nam Cheong chief executive Leong Seng Keat says the company’s vessel chartering business unit will continue its growth momentum based on improving market conditions.
“Consistent with the guidance from the most recent Petronas Activity Outlook report, the increasing drilling and development activities are forecasted to bolster demand across all major offshore vessel types to 2022 and underpin a healthy utilisation rate,” says Mr Leong.
He also has a positive outlook for the maintenance, construction, and modification (MCM) segment and expects an increase in the number of man hours required in the brownfield hook-up and commissioning (HUC) segment, further boosting demand for accommodation and maintenance vessels.
In December, Nam Cheong Ltd clinched long-term charter contracts for two platform supply vessels (PSVs) and one anchor-handling tug supply (AHTS) vessel valued at Myr54.8M (US$13M). The charters, with international oil majors for offshore activity in Malaysian waters, boosted Nam Cheong’s total order book to Myr290M (US$68.9M).
The contracts are expected to bolster the group’s revenue, contributing positively to its financial performance from the financial year ending 31 December 2019 through to 31 December 2021.
Nam Cheong’s chartering revenue jumped from Myr48.8M (US$11.6M) in Q3 2018 to Myr91.7M (US$21.8M) in Q3 2019, an 88.0% year-on-year increase. Nam Cheong’s fleet grew from 16 vessels in Q1 2017 to 34 vessels in Q3 2019.
Mr Leong’s son, Jonathan Leong, will be responsible for growing the chartering business division’s profitability further, following his appointment as the executive director of the company’s vessel chartering subsidiary SKOSV Sdn Bhd in February. Most recently, Mr Leong was manager of business development for Nam Cheong Offshore Pte Ltd.
While improvements in the Malaysian offshore energy sector are welcome after the prolonged downturn, Mr Leong warns that there are many challenges still to overcome.
“While the market is recovering, banks are still cautious and hence slow to provide financing. Thus, financing in the operations and maintenance (O&M) industry continues to be a challenge,” he says.
He adds that the company’s balance sheet was impacted by significant asset impairments in 2017 that will take some time to recover from. “The recovery would probably be through the eventual asset price appreciation when the market recovers,” he points out.
Young fleet with environmental focus
Singapore exchange-listed Nam Cheong Ltd has built and delivered more than 140 vessels since 2007 from Nam Cheong Dockyard, Miri shipyard located in Kuala Baram, Sarawak, Malaysia and through ‘outsourced’ shipyards in China. Nam Cheong launched its vessel chartering division in 2007. With an average age of less than three years old, Nam Cheong has one of the youngest fleets in Malaysia. It operates a fleet of AHTS vessels, PSVs, maintenance work vessels, safety supply vessels and landing craft.
Mr Leong says Nam Cheong focuses its efforts on building OSVs that are “fuel-efficient, sensibly simplified but fit for purpose design and environmentally friendly.” As an example, he cites the NCA80E design launched in 2014.
Based on a Nam Cheong proprietary design, the NCA80E is a 64.8-m diesel-electric-powered AHTS with a bollard pull in excess of 80 tonnes. The vessel, with a deck area of 420 m2 and dynamic positioning class 2 capability, is outfitted with two controllable-pitch, azimuthing stern thrusters. It has an endurance of about 25 days on an average cruising speed of 11 knots. Nam Cheong has delivered eight vessels to date, all either sold to international clients or chartered.
Mr Leong says that while the current overhang in the shipbuilding market has led to a lack of new vessel construction, “the natural attrition of current vessels due to age can lead to increasing demand in the future, paving the way for shipbuilding to resume.”
He says that one of the company’s challenges has been to acquire the right skilled labour for its shipyard business. “We pay a lot of attention to attracting and retaining talent,” he says. This extends to picking the right vessel designs, building partnerships with equipment suppliers and finding other shipyards where work might be outsourced. These are all important for effective project management, on-time project delivery and efficient management of Nam Cheong vessels in operation, he says.
Not including subcontractors, Nam Cheong employs more than 100 workers at its facilities in Kuala Lumpur, Singapore, Miri, Labuan and China.
New OSV design development
While the oversupply in the OSV market has dampened demand for new construction, it has not slowed Nam Cheong’s design development efforts. “We are constantly looking into ways to improve our vessel designs,” says Mr Leong. The designs have to be “fit for purpose to meet our customers’ needs and sensibly simple to be cost-effective.” This means exploiting newer technologies that can enhance environmental performance, improve fuel efficiency and decrease a vessel’s carbon footprint.
Mr Leong says Nam Cheong is developing new vessel designs that will be more environmentally friendly in anticipation of tighter environmental controls in most port areas. It is also exploring diversification into building aluminium vessels.
Since 2016, Nam Cheong has had eight diesel-electric AHTS vessels in full operation. These are capable of fuel savings in excess of 20%, resulting in a reduction in CO2 emissions, says Mr Leong. “By running only marine gas oil (MGO), these vessels also reduce sulphur dioxide emissions,” he adds. “This puts us ahead of IMO regulation as MGO typically contains not more than 0.1% of Sulphur.”
Nam Cheong has also designed an LNG-fueled electric propulsion PSV to reduce NOx emissions and is intensifying its efforts to reduce CO2 emissions from its vessels.
Road less traveled to CEO
Mr Leong’s path to becoming the chief executive of a leading Malaysian OSV builder and charterer was not an obvious one. He began his career in the information technology (IT) sector after graduating with a Bachelor of Science degree in Engineering from Australia’s Chisholm Institute of Technology in 1990 degree.
After more than 15 years in IT management and business, Mr Leong sold his online gaming firm to an investor.
Influenced by his father-in-law, Nam Cheong Group executive chairman Tan Sri Datuk Tiong Su Kouk, he joined Nam Cheong Ltd as an executive director in 2005. Mr Leong says he saw the position as a good opportunity to empower Nam Cheong’s business with his international sales and marketing skills, and to take a bigger role in a fast-developing industry.
After eight years with the company, Mr Leong was appointed Nam Cheong’s chief executive officer in 2013. During his time as chief executive, Mr Leong has successfully expanded the company’s marketing efforts and pioneered the sale of the Nam Cheong-built vessels to international OSV clients.