ASL Marine - Rising up to the challenge (KimEng)

Event

 ASL Marine’s 4QFY Jun11 results fell slightly short of our expectation mainly because there was no vessel sale during the period. On a full‐year basis, net profit dipped by 14.4% YoY, narrowing to $31.9m on the heels of a broad‐based decline in revenue. However, considering the challenges of the external environment, we think the results were quite commendable. A final cash dividend of 1.5 cents per share was declared, translating to decent yield of 2.9%. Maintain BUY.

Our View

 With fewer projects completed in 4QFY Jun11 given the lower orderbook in hand, it was not surprising that shipbuilding revenue contracted by 14.3% YoY to $57.5m. On the bright side, management said enquiries for newbuilds have been healthy but acknowledged that it may take a longer time to negotiate and pen new contracts. It expects gross margin to remain firm at around 8‐9% going forward.

 The persistently weak 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 bareboat charter contracts (ie, 2‐5 years).

 Turnover from ship repair operations fell by 6.7% YoY to $17.7m in tandem with a drop in volume of jobs undertaken. To our pleasant surprise, gross margin recovered strongly to 23.7% in 4QFY Jun11 from 15.4% in the previous quarter. 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 (FY Jun11: 19.7%).

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 selloff. We maintain our BUY recommendation and target price of $0.69, based on 9x FY Jun12 PER (or implied P/B of 0.8x).