ASL Marine Hldgs Ltd - Pickup in newbuild orders (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.49

Fair Value: S$0.54

Secures S$267m worth of shipbuilding contracts. ASL Marine (ASL) announced that it has secured new shipbuilding contracts worth about S$267m for the construction of five vessels. Two platform supply vessels are scheduled to be completed in 2013, one dredger in 2014 and two barges in 2012. We estimate gross margins of 8-9% for these projects, and correspondingly tweak our overall gross profit margin for FY12 slightly lower from 14.6% to 14.2%.

Starting to see a revival in new orders. New order flow has picked up for ASL Marine, with the group securing S$426m worth of new contracts in the past four months alone. In comparison, only about S$93.5m new orders were clinched in CY2010. We estimate that these contracts bring ASL's order book to about S$570m (~34 vessels), compared to its low of S$218m as at end 3QFY11. Channel checks reveal that newbuild enquiries are picking up, although competition remains intense in the industry as the previous drought in new orders has resulted in available capacity in many yards in the region.

Unlikely to be a direct beneficiary of new orders in Malaysia for now. There has been increased interest in Malaysia's offshore and marine sector following the government's announcement that it intends to boost domestic oil production. Though ASL is active in the offshore shipbuilding space and two of its yards are in SE Asia, we do not see it as a direct beneficiary for now. It is difficult for foreign players to penetrate the Malaysian market, as the government is keen for oil and gas related work to be awarded to domestic companies to keep work inside the country. That is not to say that this market is totally closed out to the group; there may be chances for partnerships with Malaysian companies through joint ventures. Meanwhile, we note that ASL's customers are mainly from Asia ex Malaysia, Europe and Australia.

Maintain HOLD. We like ASL's diversified business model which includes shipbuilding, repair and chartering operations. The group also builds a good range of vessels without heavy reliance on a particular type of product. We are encouraged by the pick up in new orders, but it is still early to conclude that the recovery is a sustainable one. With the slight adjustment in our gross profit margin assumption, our fair value estimate slides from S$0.57 to S$0.54, still based on 10x FY12F core earnings. Maintain HOLD given limited upside potential for now.