Executive Summary

Nordic Group Limited is a Singapore-listed industrial services conglomerate providing system integration, maintenance, repair and overhaul (MRO), precision engineering, scaffolding, insulation, petrochemical engineering, cleanroom/air/water solutions, and structural engineering services. The company serves the marine, oil & gas, petrochemical, semiconductor, pharmaceutical, and defence sectors across Singapore, China, Malaysia, and Abu Dhabi.

Investment Thesis in 3 Sentences: Nordic Group is a well-managed, founder-led Singapore industrial services business with a growing recurring maintenance revenue base (49.6% of revenue), strong order book visibility (S$201.6M / 15 months of revenue), and an attractive 5% dividend yield. At S$0.50, the stock trades at ~11x trailing earnings and 1.5x book value -- reasonable for a business compounding net profit at 34% CAGR over FY2020-FY2024. The key risk is margin compression from labour cost inflation and project delays, but the strategic pivot toward maintenance services and consistent 40% dividend payout provide downside protection.

Key Metrics Dashboard:

PHASE 0: Opportunity Identification

Why Does This Opportunity Exist?

1. Small-cap neglect: Nordic Group has a market cap of ~S$199M (US$150M), well below the radar of institutional investors. Coverage is minimal -- no major sell-side house covers this stock actively.

2. Singapore small-cap discount: SGX-listed industrial services companies persistently trade at lower multiples than comparable companies on other exchanges, reflecting the "Singapore small-cap discount."

3. Revenue stagnation perception: Revenue has been essentially flat for three years (S$162.8M in FY2022, S$160.6M in FY2023, S$158.4M in FY2024), which may lead superficial screening tools to flag the company as "no growth."

4. Founder-controlled: Chang Yeh Hong, the Executive Chairman, holds 54.68% of shares. While this provides alignment, it reduces free float (estimated at ~30%) and limits institutional interest.

5. Cyclical industry exposure: Oil & gas and petrochemical services are perceived as cyclical, which suppresses multiples even when the company is building recurring revenue.

PHASE 1: Risk Analysis (Inversion)

How Could This Investment Lose 50%+ Permanently?

1. Structural decline in Singapore's petrochemical/refining sector: If major petrochemical plants in Jurong Island shut down or relocate, Nordic's maintenance services revenue base would be devastated. Singapore's petrochemical hub provides the stable recurring revenue underpinning the business.

   • P(Risk): 10% over 5 years
   • Impact: -60% to earnings
   • Expected Loss: 6%

2. Major project failure or safety incident: An industrial accident could result in significant liability, reputational damage, and loss of key customer contracts. Nordic operates in hazardous environments.

   • P(Risk): 5% in any year
   • Impact: -40% to equity value
   • Expected Loss: 2% per year

3. Acquisition destruction of value: Nordic has been actively acquiring (Starburst in 2022, Eratech, Avon). If these acquisitions destroy value through integration failures or overpayment, goodwill impairment could erode book value. Current goodwill of S$40.4M is 31% of total equity.

   • P(Risk): 15% over 5 years
   • Impact: -30% to book value
   • Expected Loss: 4.5%

4. Labour cost inflation / worker shortage: As a labour-intensive business, margins are highly sensitive to foreign worker levies, dormitory costs, and labour availability. FY2023's gross margin compressed from 28% to 23% primarily due to labour costs.

   • P(Risk): 30% ongoing
   • Impact: -20% to earnings
   • Expected Loss: 6%

5. Key-man risk: Chang Yeh Hong is the driving force. His departure or incapacity could create succession uncertainty. Teo Ling Ling (CEO of Nordic Flow Control) is the second key executive with 8.12% ownership.

   • P(Risk): 10% over 5 years
   • Impact: -25% market value
   • Expected Loss: 2.5%

3-Sentence Bear Case

Nordic Group is a labour-intensive industrial services conglomerate whose margins have compressed from 28% to 23% gross margins, with revenue stagnating at S$158-163M for three years. The company's acquisition strategy has loaded S$40.4M in goodwill onto the balance sheet (31% of equity), creating impairment risk if acquired businesses underperform. With a founder holding 54.68% of shares and limited free float, the stock could remain trapped at depressed valuations indefinitely despite reasonable operating performance.

Sell Triggers (Non-Price Based)

1. Gross margins fall below 20% for two consecutive years
2. Net gearing exceeds 50%
3. Order book falls below S$120M (less than 9 months of revenue)
4. Goodwill impairment exceeding S$10M
5. Chang Yeh Hong sells more than 10% of his holding
6. Loss of more than 2 major maintenance contracts in a single year

PHASE 2: Financial Analysis

5-Year Financial Summary

Revenue Composition (FY2024)

Project vs Maintenance Split (FY2024)

The strategic shift toward maintenance services is evident: maintenance grew from 48.6% in FY2020 to 49.6% in FY2024. Management targets 40-50% from maintenance.

Balance Sheet Analysis (31 Dec 2024)

Assessment: The balance sheet is solid. Net gearing of 13% is conservative. However, goodwill of S$40.4M (31% of equity) from acquisitions represents a risk if acquired businesses underperform. Total borrowings declined significantly from S$96.0M in FY2023 to S$59.8M in FY2024, demonstrating strong deleveraging.

Cash Flow Analysis

Owner Earnings Calculation:

Net Profit:                    S$17,513
+ Depreciation & Amortisation: S$5,839
- Maintenance CapEx (est):     S$(2,000)
- Working Capital Changes:     S$(5,387)
= Owner Earnings:              S$15,965

Owner Earnings per share: ~4.0 cents

Valuation Analysis

Graham Number:

Graham Number = sqrt(22.5 x EPS x BVPS)
             = sqrt(22.5 x 0.044 x 0.325)
             = sqrt(0.3218)
             = S$0.567

The current price of S$0.50 is below the Graham Number of S$0.567, suggesting the stock is not overvalued by Graham's standard.

Net Current Asset Value (NCAV):

NCAV = Current Assets - Total Liabilities
     = 143,500 - 105,003
     = S$38,497
NCAV per share = 38,497 / 399,028 = S$0.0965

The stock trades well above NCAV, which is expected for a profitable industrial services company.

Owner Earnings Valuation:

Conservative (10x): 15,965 x 10 / 399,028 = S$0.40
Fair Value (12x):   15,965 x 12 / 399,028 = S$0.48
Optimistic (15x):   15,965 x 15 / 399,028 = S$0.60

DCF Valuation (Conservative):

Assumptions:

• Owner Earnings Year 1: S$16.0M
• Growth Rate (Years 1-5): 5% per annum
• Growth Rate (Years 6-10): 3% per annum
• Terminal Growth Rate: 2%
• Discount Rate: 10%

Year  Owner Earnings  PV Factor   PV
1     16,800          0.909       15,272
2     17,640          0.826       14,575
3     18,522          0.751       13,910
4     19,448          0.683       13,283
5     20,420          0.621       12,681
6     21,033          0.564       11,863
7     21,664          0.513       11,114
8     22,314          0.467       10,419
9     22,983          0.424        9,745
10    23,673          0.386        9,138

PV of Cash Flows:                122,000
Terminal Value: 23,673 x 1.02/(0.10-0.02) = 301,831
PV of Terminal:  301,831 x 0.386 =          116,507

Total Enterprise Value:           238,507
Less Net Debt:                    (16,338)
Equity Value:                     222,169
Per Share:                        S$0.557

Relative Valuation:

Intrinsic Value Estimate (Weighted Average): S$0.52

Margin of Safety at S$0.50: ~4% (insufficient for a new position)

Price Targets:

PHASE 3: Moat Analysis

Moat Sources

1. Switching Costs (Moderate): Nordic has long-standing maintenance contracts with major petrochemical and oil & gas facilities on Jurong Island. Switching industrial maintenance providers is costly and risky -- operators must ensure the new provider has the safety certifications, worker competencies, and track record. Nordic is the "resident contractor" for many major companies. This creates meaningful switching costs, especially for ongoing maintenance.

2. Customer Relationships / Installed Base (Moderate): Over 1,000 vessels have been fitted with Nordic's system integration solutions. Each installation creates an annuity stream of MRO revenue. The installed base grows with every new vessel delivery.

3. Diversification Breadth (Narrow): Nordic's eight service divisions allow it to offer "one-stop solutions" that smaller competitors cannot match. A client needing scaffolding, insulation, petrochemical cleaning, and system integration can use Nordic for all of these, reducing coordination costs.

4. Certifications & Accreditations (Narrow): ISO 9001, ISO 14001, ISO 45001, AS 9100:D, bizSAFE Star, and various marine classification body accreditations (ABS, Lloyd's, NK, etc.) create barriers to entry. These take years to obtain and maintain.

5. Scale in Singapore Market (Narrow): As a S$160M revenue industrial services group, Nordic has scale advantages in Singapore's relatively small industrial services market. It can mobilise larger workforces and equipment for complex projects.

Moat Width: Narrow

The moat is real but narrow. Switching costs in maintenance contracts and the installed base of vessel systems provide the strongest competitive advantages. However, Nordic competes in fragmented markets where price competition is significant, and there is no proprietary technology or brand premium that would qualify as a wide moat.

Moat Durability Assessment

10-Year Moat Trajectory: Stable. The moat is neither widening nor narrowing meaningfully. The shift toward more maintenance services could modestly widen the moat over time through deeper customer entrenchment.

PHASE 4: Management & Incentive Analysis

Leadership

Chang Yeh Hong - Executive Chairman (54.68% ownership)

• Former Citibank regional MD and Standard Chartered global product head
• Executive role since 2004; listed the company in 2010
• Driving force behind acquisition strategy and business diversification

Teo Ling Ling - Executive Director & CEO, Nordic Flow Control (8.12% ownership)

• 25+ years in marine valve remote control industry
• Responsible for the system integration and MRO divisions

Chia Meng Ru - Group CFO

• Former audit partner at RSM Chio Lim LLP
• Manages finance, compliance, M&A, and investor relations

Owner-Operator Assessment

Chang Yeh Hong's 54.68% ownership is strongly aligned with minority shareholders. With over S$109M of personal wealth tied to the company at current prices, his incentives are clearly aligned with long-term value creation. The 40% dividend payout policy since FY2015 demonstrates commitment to returning capital.

Capital Allocation Track Record

Assessment: Capital allocation has been disciplined. Acquisitions have been bolt-on in nature, expanding capabilities into adjacent areas (defence, cleanroom). The S$40.4M goodwill load is the main risk from the M&A strategy. Debt management has been excellent, with net gearing declining from 30% to 13% in one year.

PHASE 5: Catalyst Analysis

Potential Catalysts

Anti-Catalysts

PHASE 6: Decision Synthesis

Megatrend Resilience

Expected Return Calculation

Adding 3 years of dividends at ~3.5%: +10.5% total dividend return.

Total Expected 3-Year Return: ~+30% (or ~9% annualised)

Investment Recommendation

+---------------------------------------------------------------+
|                   INVESTMENT RECOMMENDATION                    |
+---------------------------------------------------------------+
| Company: Nordic Group Limited    Ticker: MR7.SG               |
| Current Price: S$0.50           Date: 22 February 2026        |
+---------------------------------------------------------------+
| VALUATION SUMMARY                                             |
| +---------------------------+-----------+-------------------+ |
| | Method                    | Value/Shr | vs Current Price  | |
| +---------------------------+-----------+-------------------+ |
| | Graham Number             | S$0.567   | +13% upside       | |
| | Owner Earnings (10x)      | S$0.40    | -20%              | |
| | Owner Earnings (12x)      | S$0.48    | -4%               | |
| | DCF (Conservative)        | S$0.557   | +11% upside       | |
| | Owner Earnings (15x)      | S$0.60    | +20% upside       | |
| +---------------------------+-----------+-------------------+ |
|                                                               |
| INTRINSIC VALUE ESTIMATE: S$0.52                              |
| MARGIN OF SAFETY: 4% (insufficient)                           |
+---------------------------------------------------------------+
| RECOMMENDATION:  [X] WAIT  [ ] BUY  [ ] HOLD  [ ] SELL       |
+---------------------------------------------------------------+
| STRONG BUY PRICE:     S$0.36 (30% below IV)                  |
| ACCUMULATE PRICE:     S$0.42 (20% below IV)                  |
| FAIR VALUE:           S$0.52                                  |
| TAKE PROFITS:         S$0.62 (20% above IV)                  |
| SELL PRICE:           S$0.78 (50% above IV)                   |
+---------------------------------------------------------------+
| POSITION SIZE: 1-2% of portfolio                              |
| CATALYST: Order book conversion & margin recovery             |
| PRIMARY RISK: Labour cost inflation / revenue stagnation      |
| SELL TRIGGER: Gross margin below 20% for 2 consecutive years  |
+---------------------------------------------------------------+

Verdict: WAIT

Nordic Group is a decent quality, founder-led industrial services business trading at a fair price. The 14% ROE, 20% ROIC, and 5% dividend yield at the time the annual report was written (at S$0.33) were attractive. However, at S$0.50, the stock has re-rated significantly and now offers only ~4% margin of safety against our S$0.52 intrinsic value estimate. The stock ran ~52% in the past year, absorbing much of the value.

For a new position, we would want an entry point of S$0.42 or below to have adequate margin of safety. The business quality is B+ -- good but not exceptional -- with a narrow moat and cyclical industry exposure. Patient investors should add this to a watchlist and wait for a pullback to the S$0.38-0.42 range.

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