ASL Marine - Strong enquiry of offshore orders

We recently hosted a postresults briefing for ASL. Investors’ concerns centred on declining shipbuilding orderbook, competition arising from other repair yards and whether shipchartering activities could be sustainable. Management reassured that it is receiving a healthy level of newbuild and repair enquiries, driven by increased offshore activities. While we do not anticipate sudden pick-up in newbuild orders for this year, we believe this has been priced in. With the expansion of Batam yard to be fully completed by Mar 10, we believe ASL will be one of the key beneficiaries for repair work of an enlarged fleet globally. Ascribing P/E of 6x to FY11 EPS, we derive our target price of S$1.41. Maintain BUY.

Management is receiving healthy enquiries for newbuilding of high capacity tugs and offshore construction vessels. We understand that these offshore vessels are in demand, given the increased offshore drilling activities in Australia (Western Australia’s Gorgon Gas project) and Indonesia (Timor Sea, Sumatra). Hence, we believe this will be positive for ASL. However, management acknowledges that due to fewer orders and tighter competition, the margins of new orders may be compromised, going forward.

Batam’s yard capacity to increase by 70% in deadweight tonnage in Mar 10. ASL’s Batam yard is currently adding two drydocks and a graving dock as well as lengthening its finger pier. When the upgrading work is completed in Mar 10, ASL’s yard capacity would increase by 70% dwt and be able to accommodate the repair and conversion works of larger vessels. Management is optimistic on the long-term outlook, underpinned by an increasing global fleet and regulatory requirements.

Shipchartering. ASL has a current fleet of 189 vessels with an average age of six years. ASL is currently building 11 vessels internally and a vessel externally to add to its chartering fleet, which will increase to a fleet of 201 vessels by FY10.

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ASL Marine and Yangzijiang among 12 constituents to form new Maritime Index

ASL Marine and Yangzijiang are among the 12 constituents of the new FTSE ST Maritime Index launched by Singapore Press Holdings (SPH), Singapore Exchange Limited (SGX) and FTSE Group (FTSE).

FTSE ST Maritime Index – ASL Marine Holdings, Cosco Corp, Courage Marine Group, First Ship Lease Trust, Jaya Holdings, JES International Holdings, Mercator Lines, Neptune Orient Lines, Rickmers Maritime, STX Pan Ocean, Swissco International, Yangzijiang Shipbuilding Holdings.

The index reflects the strength of the maritime component of companies in the energy, offshore and shipping industries listed on SGX; underlines the Exchange’s efforts in enhancing this sector.

The FTSE ST Maritime Index comprises 12 companies that have at least 55% of their revenue derived from maritime related activities including the manufacturing, ownership, operation and repairing of commercial and/or cargo vessels.

The new index provides investors and analysts a benchmark tool to track and measure the performance of SGX listed companies in the maritime industry that meet the indexing standards required by international investors.

ASL Marine: Creditable FY09 results. Maintain BUY

Results largely in line with expectations. ASL Marine Holdings (ASL) turned in a good set of results amid a slowing industry. Although results were lower sequentially on the back of lower revenue growth and impairment loss on vessels of S$3.2m, revenue rose 8.7% YoY to S$435.4m and net profit rose 17.9% to S$71.1m for FY09. Shiprepair and shipchartering revenue were in line with our expectations for 4Q09, but shipbuilding revenue was lower than expected due to lower revenue recognition as certain work-inprogress had yet to reach the 10% recognition threshold during the period. Revenue and net profit met 96% and 94% of our full-year estimates respectively.

Minimal new orders, but ASL is diversified. As mentioned in our earlier reports, new order flows were minimal and this is evident from the group's lower order book of about S$523m compared to S$582m in 3QFY09. However, this order book figure does not include eleven vessels (worth S$58m) that the group is building internally to expand its ship chartering fleet. It is encouraging that demand for shiprepair and chartering are still holding up, which is good news for the relatively diversified group (shipbuilding, repair and chartering accounted for 33.8%, 27.5% and 38.7% of FY09 gross profit respectively).

Cautiously optimistic outlook. We are cautiously optimistic on the shiprepair and chartering sectors, and believe that the medium to longer term outlook is bright. Management revealed that value per contract for the ship repair segment fell this quarter but the group repaired more vessels, hence the healthy results for this segment. The group is also expanding Batam facilities to cater to more ship repair activities and this will be completed in 3QFY10. Ship chartering, though affected by lower charter rates, still has a positive outlook due to demand from domestic infrastructure, construction and land reclamation projects and offshore oil and gas activities, amongst others.

Fair value raised to S$1.18. As guided by management, we are expecting lower but still healthy earnings for FY10, barring unforeseen circumstances. The stock has risen about 30% since our last report, and though the spread between ASL and its comparable peers has narrowed, it is still trading at about 5x FY10F earnings compared to its peers' average of 11x. Based on 7x FY10F core earnings (prev. 6x), we are raising our fair value estimate to S$1.18 (prev. S$1.03) for ASL Marine and our BUY rating remains.

ASL Marine - No new shipbuilding orders since October

ASL Marine posted a robust set of FY09 results – excluding a doubtful debt provision and impairment loss totalling S$7.6m, the numbers were bang in line. FY09 net earnings were S$71.0m, up 17.9% over FY08. Without disposal gains, however, earnings were flat at around S$41.0m. ASL proposed a final dividend of 3cts per share, unchanged from FY08.

Revenue for the group grew by 8.7% to S$435.4m, boosted mainly by its shipbuilding segment, which grew 10.5%. Shiprepair remained steady, while shipchartering grew by 9.4%. Overall margins have also been sustained, which is especially pertinent for shiprepair, which is facing difficult operating conditions in the current weak market environment.

ASL has managed to sustain its shiprepair revenues especially in the final quarter. However, while the number of ships repaired has increased, the average contract size has declined. Going forward, management says it needs to work harder in order to secure customers, but we believe that erosion in revenues and margins is inevitable.

ASL has also not secured any new shipbuilding orders since October 2008, but is currently working on its existing orderbook of S$523m. Management’s reading of the market is that it does not expect to receive new orders until the credit situation improves. Under these conditions, we are conservatively not expecting any new shipbuilding orders and therefore factoring in a 60% decline in the segment’s revenue from FY12.

Ship chartering revenues will be propped up by the addition of 12 vessels, and better rates on timecharters, but these can be volatile. We are leaving our FY10 core net profit forecast unchanged at S$45m, for a YoY pick-up of 10%. ASL is still trading at compelling valuations of 6.8x FY10 earnings. We maintain our BUY recommendation, to our target price of $1.62, in line with peer average of 10x PER.

ASL Marine: Character to tide through tough times

New loans growth still weak. From our discussions with several industry players in the offshore and marine industry, the ease of obtaining loans from banks is still nowhere close to pre-crisis levels. Indeed, obtaining bank financing is still a difficulty, especially for relatively smaller firms. On a broader point of view, latest monetary statistics show that businesses have bore the brunt of the credit crunch, as loans growth to firms in Singapore decelerated rapidly to only 3.7% YoY in May compared to 37.2% growth in September last year (Exhibit 1). On top of weak demand, unavailability of credit facilities will continue to suppress new shipbuilding orders.

Less costly assets, less impact. Activity will be greatly affected in a downturn when the cost or working capital needed is high. Oil companies have doused their enthusiasm about going into deepwater drilling due to the significant funds and costs involved. Tugs and barges are relatively less costly than most other offshore support vessels, and being a specialist in this area may serve ASL Marine well in this downturn.

Ship repair activities holding up. We were updated by management that ship repair activities are still holding up for now, though we note that ship owners may attempt to defer maintenance works that are not mandatory. As mentioned in our earlier report, this business segment is likely to be affected during this downturn and experience pricing pressures. However, the medium to long-term prospects of this business is bright considering the significant increase in the global fleet in the past few years.

Maintain BUY. The current economic downturn and the uncertainty in oil prices make it hard for companies to negotiate for new contracts unless they have deep pockets backed by earnings visibility. ASL's relatively low gearing (net debt-to-equity: 0.17x), strong order book (S$582m extends to FY11) and diversified income streams will aid it to emerge as a stronger player in the longer haul. The stock is currently trading around 3.5x FY09F PER, lower than the average 9x of its comparable peers. We maintain fair value estimate of S$1.03 for ASL Marine and our BUY rating remains.

ASL Marine: No surprises in 3QFY09

3QFY09 results – no surprises. ASL Marine (ASL) released its 3QFY09 results yesterday. Revenue improved 17% YoY (but declined 1% QoQ) to S$106.9m, while core operating profit (excluding gains on disposal of ASL Energy and other assets as well as allowance for doubtful debts) was S$15.2m (-18% YoY, - 15% QoQ). The decline was due to lower profit margins achieved for shipbuilding (as a result of increased cost provisions on selected projects), and shiprepair (from lower volume of shiprepair jobs undertaken during the quarter). 3Q09 net profit was in-line with management’s guidance as well as our expectations.

Orderbook provides earnings visibility till FY11. As at 31 Mar 09, ASL has an outstanding orderbook of S$582m (from S$663m as at 31 Dec 08) for deliveries of 35 vessels to external customers. Separately, ASL also secured S$22m worth of orders for shiprepair and ship conversion projects including fabrication and outfitting works to a Heavy Transport Vessel and conversion of tanker into a FSO unit.

Settlement on rescission of shipbuilding contract and thus, oil tanker to add to ASL’s fleet. In late Apr, ASL announced that it had reached a settlement with a customer on the rescission of a contract to build an oil tanker. According to the management, under the terms of the contract, the customer was required to accept delivery of the vessel upon completion. However, the customer was unwilling to do so until all the outstanding items were settled. As this matter could potentially lead to a protracted, costly arbitration, the management then decided to cancel the contract, refund the customer US$18.8m (equivalent to the total payment by the customer to-date) and take ownership of this oil tanker. The management disclosed that they are currently in the process to charter this vessel.

TP raised to S$1.07, maintain BUY. Our core FY09 operating profit remains unchanged but the net profit is raised owing to increased gain on disposal of PPE as part of ASL’s fleet renewal programme. We have also reduced our FY10 margins in view of higher operating cost incurred. Given the recent sector re-rating, we ascribe a valuation metric of 6x (in-line with ASL’s peers) FY10 to recurring EPS. As such, our target price is now S$1.07 (from S$0.55 previously). Maintain BUY.

ASL Marine – 3Q09 results

ASL Marine announced 3Q09 net earnings of S$23.4m, up 65% versus 3Q08. YTD, it reported a 51% boost in net earnings to S$63.6m. However, these numbers included a gain of S$12.2m million from the disposal of ASL Energy. Excluding the gain, net profit was S$11.2m for 3Q09, down 21%, and was slightly below our expectation.

Revenue for the Group grew by 17% YTD to S$333.2m through higher revenue from all three business segments. The revenue growth was attributable to progressive recognition of higher value shipbuilding projects undertaken, an increased number of shiprepair jobs and higher shipchartering revenue due to increased fleet size and a higher proportion of time charters.

Gross profit increased by 11% to S$58.9m, but gross margin decreased marginally from 18.7% to 17.7% due to higher cost provisions on certain shipbuilding projects lower margins in shiprepair. We are raising our net profit forecast by 7% to S$77.4m, to factor in the higher than expected gain from the disposal of ASL Energy, but lowering our operational earnings forecast, due to lower margins, particularly on shiprepair.

ASL has seen its share price almost double in the recent market rally from extremely oversold levels. Despite this, ASL is still trading at extremely attractive valuations of 3.4x FY09 earnings (YE June), and 5.8x on core net earnings (excluding disposal gains). We maintain our Buy recommendation, to our target price of S$1.62, or just 7x PER.

ASL Marine Holdings: Good results, but weaker operationally

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).

ASL Marine - Heading lower in the near term

ASL Marine is likely to face more correction pressure in the days aheadfollowing the formation of a bearish engulfing and tweezers top pattern atthe key gap zone resistance level (end Sep ’08).

With the RSI indicator now falling out of the overbought region, coupledwith the MACD and Momentum indicators turning sharply lower with likelybearish crossovers soon, they seem to support our view that the sellingmomentum could persist in the near term.

We expect the correction to find an initial support at $0.685-$0.71 (gap inearly May ’09), failing which, we see the next key support at $0.57 (upperboundary of 6.5-month uptrend channel and resistance-turned-support level)

Immediate resistance is pegged at $0.93 (2009 high), ahead of $1 (support-turned-resistance level).

ASL Marine Holdings Ltd: Diverse exposure to various industries

Marine services group. ASL Marine Holdings Ltd (ASL) is a marine services group engaged in shipbuilding, shiprepair, shipchartering and other marine related services with customers in the Asia Pacific, South Asia, the Middle East and Europe. The group owns and operates shipyards in Singapore, Batam (Indonesia) and Guangdong (China) besides a fleet of 188 vessels. In 3Q09, group revenue rose 16.6% YoY to S$106.9m while net profit rose 65% to S$23.4m, but this includes a gain of S$12.2m on the disposal of ASL Energy, a jointly-controlled entity.

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.