ASL Marine Holdings - Order book boost (DBSVickers)

HOLD S$0.635 STI : 3,125.87

Price Target : 12-Month S$ 0.63 (Prev S$ 0.69)

Reason for Report : Revision in earnings forecasts, TP

Potential Catalyst: Sustained order wins

• Order wins of S$131m boost orderbook; book-to-bill ratio raised to 1.38x from 0.96x.

• Don’t get overly excited – margins could be low.

• Lowered FY11/12F earnings by 17%/2% for weak margins.

• Maintain HOLD, TP S$0.63.

Newbuilding orders worth S$131m. ASL announced new orders for 11 vessels worth c. S$131m. These comprise 9 AHTS and 2 Emergency Response and Rescue vessels.

Much needed boost to shipbuilding orderbook. This batch of orders brings ASL’s total FY11 shipbuilding order wins to c. S$186m, ahead of our S$80m order wins assumption, and provides a much needed boost to its steadily declining orderbook. We estimate end 4Q11 backlog of S$291m vs. S$218m as of end 3Q11, or a book-to-bill ratio of 1.38x.

But don’t get overly excited. While we view this positively, we are not overly excited as 1) these orders were likely to have been secured at relatively low margins, given the intense competition for such vessels (i.e. small AHTS) in the market; 2) earnings contribution from these orders is expected to kick in only from 3Q FY12 onwards, and merely offset the earnings drop from the completion of the existing backlog.

FY11/12F reduced 17%/2%. This takes into account for 1) weak chartering revenue YTD; and 2) reduced gross margins over FY11/12 to reflect intense competition across the repair and chartering businesses. The impact to FY12F is somewhat mitigated by our 51% increase in FY12’s shipbuilding revenue forecast from the latest batch of orders and our higher FY12 order wins assumption of S$150m (prev S$100m).

Maintain HOLD, TP reduced to S$0.63. Our TP is lowered to S$0.63 (prev S$0.69 on weaker earnings pegged to FY12 recurring PE of 8.2x (prev 7x), in line with the small/mid cap Singapore listed yards. We will turn more positive on ASL when 1) order flow momentum can be sustained; 2) pricing power gradually returns; 3) margins show signs of recovery. Maintain HOLD.