ASL Marine (KimEng)

Event

ASL Marine’s 4QFY Jun11 results fell slightly short of our expectation, mainly due to the absence of vessel sale during the period. On a full-year basis, net profit narrowed by 14.4% YoY to $31.9m following a broad-based decline in revenue. Putting things in perspective, we feel that the results were actually quite commendable given the current challenging external environment. The group has declared a final cash dividend of 1.5 cents per share, which translates to a decent yield of 2.9%.

Our View Not surprisingly, shipbuilding revenue contracted by 14.3% YoY to $57.5m in 4QFY Jun11 as fewer projects were completed given the lower orderbook on hand. On the bright side, management is increasingly seeing a healthy level of enquiry for newbuilds even though it may take a longer time to negotiate and pen new contracts. Gross margin is also expected to remain firm at around 8-9% going forward.

The continued weak market demand for towing jobs caused vessel utilisation rate to slide, pushing ship chartering revenue down by

8.5% YoY to $17.4m in 4QFY Jun11. But charter rates held relatively steady and gross margin expanded by 3.0ppt YoY and 0.8ppt QoQ to 26.1%. As at end-June 2011, ASL has an orderbook of $45m with respect to long-term (ie, 2-5 years) bareboat charter contracts.

Turnover from ship repair operations dropped by 6.7% YoY to $17.7m arising from lower volume of jobs undertaken. To our pleasant surprise, gross margin recovered strongly to 23.7% in 4QFY Jun11 (versus 15.4% in 3QFY Jun11). We understand that ASL took on one high-value O&G-related conversion and repair contract during the period. We have assumed a more realistic gross profit margin of 20% in FY Jun12 (vs 19.7% in FY Jun11).

Action & Recommendation

ASL has secured $159m worth of new orders since 4QFY Jun11, boosting its net orderbook to $310m (with progressive deliveries up to the third quarter of 2013). The stock is trading at only 0.6x P/B after the recent market sell-off. We maintain our BUY recommendation with a target price of $0.69, based on 9x FY Jun12 PER (or implied P/B of 0.8x).