ASL reported a strong set of results, with 3Q09 headline net profit of S$23.4m (+65% y-o-y, +44% q-o-q) coming in above our expectations, on revenue of S$106.9m (+27% y-o-y, -1% q-o-q). This was mainly due to a larger than expected gain from the divestment of its stake in ASL Energy earlier this year, and an additional S$0.4m vessel disposal gain. However, operating profit of S$11.9m was weaker than expected, mainly due to: 1) weaker gross margins (-11.5ppt y-o-y) on the ship repair business from lower volume of jobs undertaken in the period; and 2) a relatively large S$2.3m provision made for doubtful debts. Stripping out exceptionals, we estimate recurring income to be c. S$11m, down 15% y-o-y. Balance sheet remains strong with net gearing of 0.17x, expected to dip to 0.14x by end FY09.
We adjust our FY09 earnings estimate upwards slightly by 1% to S$72.9m to factor in the larger than expected disposal gains, but maintain our FY10/11 numbers. Going forward, we expect decline in shipbuilding contributions to be somewhat mitigated by greater contributions from the higher margin ship repair division, which is expected to ramp up on the back of an enlarged capacity, scheduled to come on stream over 2H2009.
Downgrade to HOLD, with TP maintained at S$0.94. While we still like ASL for its diversified revenue stream and strong balance sheet, the counter has run up 29% since we raised its fair value last week, leaving an upside of c. 6%. Hence, we downgrade ASL to HOLD (prev Buy).
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