ASL Marine Holdings - Momentum builds (DBSVickers)

BUY S$0.49 STI : 2,737.75 (Upgrade from Hold)

Price Target : 12-Month S$ 0.66 (Prev S$ 0.59)

Reason for Report : New contracts and raised earnings forecasts, upgrade in recommendation

Potential Catalyst: Order wins

DBSV vs Consensus: Lower on lower margin assumptions

• New shipbuilding orders of S$267m almost doubling orderbook; book-to-bill ratio up to 2.2x from 1.7x.

• Raised FY12/13 order wins to S$350m/S$250m; and corresponding earnings by 6%/17%.

• Upgrade to BUY, with 35% upside to revised S$0.66 TP.

Significant order wins. ASL has secured 5 new shipbuilding contracts worth S$267m, comprising 2 PSVs, 1 dredger, and 2 barges. These orders are significant, almost doubling ASL’s shipbuilding orderbook, which stood at S$310m as of mid August 2011. With this latest batch of orders and 1Q12’s orderbook draw down, we estimate ASL’s current orderbook to be c. S$518m, the highest level since end June 2009, with a book-to-bill ratio of 2.1x.

New orders extend recent flurry of contract wins by Singapore yards. This latest batch of orders adds to the flurry of contracts secured by Singapore-listed offshore yards since mid-September, which now stands at c. S$1.3bn. These contracts, secured amid the rising risk of recession and concerns over a contagion of the Eurzone crisis, should boost investors’ confidence in the longer term fundamentals of the sector.

FY12 YTD order wins surpass expectations; raise FY12/13F earnings by 6%/17%. ASL’s FY12 YTD order wins now stand at S$295m, exceeding our full year forecast of S$150m. As such, we raise our FY12/13 order wins assumption to S$350m/ $250m (up from S$150m/S$200m previously), leading to a corresponding 6%/17% increase in our FY12/13F earnings.

Upgrade to BUY, TP raised to S$0.66. ASL now boasts a significantly enhanced order backlog and earnings visibility, with earnings expected to rebound 23% y-o-y in FY13. Valuations are undemanding, trading at 6.4x/5.2x FY12/13 PE (FY ending June) and 0.5x FY12 P/BV, following a c. 26% correction since early July. As such, we upgrade ASL to BUY (from Hold), with +35% upside to our revised TP of S$0.66 (prev S$0.59).