ASL Marine Hldgs Ltd - External environment remains challenging (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.51

Fair Value: S$0.57

4QFY11 results slightly below. ASL Marine (ASL) reported a 11.9% YoY fall in revenue to S$92.6m and an 18.9% drop in net profit to S$5.8m in 4QFY11, such that FY11 revenue and net profit were 96% and 91% of our full year estimates, respectively. Gross profit margin of 14.7% in the last quarter was higher than 13.8% in 4Q10 and 12.1% in 3Q11. Meanwhile, other operating income declined to S$206k in 4QFY11 compared to S$2.6m in 4QFY10 due to lower one-off items such as disposal gains on vessels. We estimate core net profit was lower at S$21.8m in FY11 versus S$30.6m in FY10.

Shipbuilding orders still slow. Shipbuilding saw a 29.6% fall in revenue in FY11, but gross margin was comparable to FY10's at 8.3%. Currently, ASL is seeing a "healthy level of enquiry" for new vessels, such as platform supply vessels, tugs, and specialist barges. Despite this, the group is "taking a longer time" to negotiate and pen new contracts; hence we do not expect the increased level of enquiries to translate to more new orders soon.

Targeting higher value jobs in ship repair. Management mentioned that the ship repair market remains competitive, but long-term demand should still be supported by a larger world fleet and mandatory requirements for ship owners to maintain sea worthiness of their vessels. ASL is also establishing an offshore services division to target higher value offshore oil and gas related conversion and repair contracts, such as those involving FSO and FPSO vessels.

Ship chartering operations remained steady. ASL's order book for long term charter contracts increased from S$25m in 3QFY11 to S$45m 4QFY11 with the addition of two AHTS vessels to its fleet (one on a five-year contract and the other on a two year contract; both on bareboat charters). According to management, the demand for 5000BHP AHTS vessels is strong in the region, similar to what we heard from other industry players. Meanwhile, the group's vessel reflagging exercise is still ongoing, with currently at least 40 vessels Indonesian-flagged.

Maintain HOLD. ASL has an outstanding shipbuilding order book of S$310m (29 vessels) with deliveries till 3Q13. However, with the still weak outlook for the group's shipbuilding segment, we lower our FY12F earnings estimates by 12.6% and at the same time roll forward our valuation to 10x FY12F core earnings. As such, our fair value estimate slips to S$0.57 (prev. S$0.67). Maintain HOLD.