ASL Marine Holdings Ltd - Orders trickling in (CIMB)

NEUTRAL Maintained

S$0.61 Target: S$0.70

S$131m shipbuilding contracts

ASL has secured S$131m of contracts for the construction of 11 vessels, for completion between 4Q12 and 3Q13. We make no major adjustments to our order recognition and keep our earnings estimates. The latest orders do not mark a strong inflection point for Singapore yards, in our view. Instead, we see a pronounced recovery in the OSV sector only in 2012, which could lift all boats. We remain Neutral on ASL with an unchanged target price of S$0.70 (based on 7.5x CY12 P/E, its 7-year trading average). ASL is trading at only 0.7x P/BV but this is counter-balanced by its tepid ROE and earnings growth. We would revisit the stock on stronger-than-expected shipbuilding order wins and ship repair/conversion jobs.

The news

ASL has secured S$131m worth of contracts for the construction of 11 vessels comprising two units of emergency response and rescue vessels and nine anchor handling towing/supply vessels. The vessels are expected to be completed between 4Q12 and 3Q13. The two North Sea standard emergency response and rescue vessels are repeat orders from a customer and will be built at ASL’s Singapore yard. The nine anchor handling towing/supply vessels will be built at its Guangdong yard in China.

Comments

Keeping our earnings estimates. Although ASL had only secured S$55m of orders in FY11 (falling short of our order target of S$100m), the earlier-than-expected orders of S$131m coming at the beginning of FY12 have made up for the shortfall. Hence, we make no major changes to our recognition schedule and keep our earnings estimates. We are expecting S$180m of shipbuilding orders for FY12.

Expecting a pronounced recovery in OSV sector in 2012. While enquiries are healthy, management said negotiations to conclude newbuild contracts are taking more time now and are more tiresome vs. the heyday of 2006-08. Keeping in mind the different dynamics of each OSV class, the latest orders do not mark a strong inflection point for Singapore yards, in our view. Instead, we see a more pronounced recovery in the OSV sector only in 2012, which could lift all boats. Interestingly, management is more conservative and expects the rebound to take place in 2013.

Valuation and recommendation

Maintain Neutral and target price of S$0.70, still based on 7.5x CY12 P/E (7-year trading average). Although ASL is one of the cheapest small-cap stocks in the sector (at 0.7x P/BV), its ROE and earnings growth are tepid. Hence, we remain Neutral and would revisit the stock on stronger-than-expected shipbuilding order wins and ship repair/conversion jobs.