Niche position in tugs and barges. The group specializes in the building and repair of tugboats and barges, though it has moved up the value chain and also builds and repairs other kinds of vessels including offshore support vessels. Its shipchartering fleet also comprises mainly tugs and barges with many of them engaging in dredging, land reclamation and infrastructure development, among other activities. Even if the offshore market weakens because of low oil prices, the group may be able to obtain business from domestic infrastructure construction projects such as port expansion.
Integration of businesses gives rise to flexibility. ASL builds vessels to order as well as for its shipchartering operations. Should demand opportunities arise, the group also sells its vessels to earn profits. The group's shiprepair operations also enable it to have better control over repair schedule and costs of its fleet. Finally, shiprepair and shipbuilding share similar facilities, equipment and labour, hence lowering its operating costs.
Initiate with BUY and fair value estimate of S$1.03. We initiate coverage on ASL Marine with a BUY rating and fair value estimate of S$1.03 based on 6x FY10F core earnings, in line with peers. Its strong order book of S$582m which extends to FY11 also lends earnings visibility though we note that new order flow may be minimal going forward due to current tough market conditions. However, its diverse income stream from three segments (shipbuilding, repair and chartering) should help to reduce its dependence on a single sector.
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