Silver lining found for ASL Marine

Analyst notes order book is looking good following a 24.3% profit decline.

OCBC Investment Research said:

ASL Marine (ASL) reported a 25.0% fall in revenue to S$77.4m and a 24.3% drop in net profit to S$7.6m in 2QFY12. Excluding exceptional items comprising such as vessel disposal gains, core net profit was about S$6.6m, such that the 1HFY12 figure accounted for 49.6% of our full year estimate.

Gross profit margin for the shipbuilding segment increased from 7.7% in 2QFY11 and 6.8% in 1QFY12 to 11.7% in 2QFY12 due to the progressive recognition of more profitable projects. The ship repair and conversion segments also saw gross margin of 30.1% vs. 20.5% in 2QFY11 as a greater number of smaller ship repair jobs (with better margins) were undertaken. Ship chartering also saw higher gross margin of 24.8% compared to 22.8% a year ago with the full operations of larger vessels as the AHTS and ROV support vessels.

After securing S$426m worth of new contracts in 2HCY11 (vs. S$93.5m in CY2010), ASL has continued to win new shipbuilding orders worth about S$54m recently. This brings its outstanding shipbuilding order book (from external customers) to about S$553m (39 vessels) with deliveries till 1Q14, and this is the highest level that the group has seen since 3QFY09.

ASL is receiving more enquiries on PSVs, especially for work in the North Sea and Australia, and we expect more new orders for the group in the coming quarters. The substantial order book also provides enhanced earnings visibility. Meanwhile with an enlarged charter fleet and most of the vessel reflagging done, we also think that ASL is well positioned to tap on pockets of demand in Indonesia and Australia. As such, we raise our peg to 12x blended FY12/13F core earnings (prev. 10x), leading to a higher fair value estimate of S$0.68.