ASL MARINE’S business of building ships is not exactly looking great – not when it has not received a single order for the past 12 months.
But ASL does have a big shipbuilding order book of $523 million on hand to keep its yard in Batam busy. Of that orderbook, about 56% will be recognized in FY10, which is the current financial year.
The company has another core business which it is increasingly focusing on – shiprepair.
During our recent visit with analysts to the yard, we encountered fascinating sights of ships being repaired, as the pictures here show.
Based on management’s guidance, subsequently, one of the analysts, Rohan Suppiah of Kim Eng Securities, wrote: “ASL has managed to sustain its shiprepair revenues so far. Demand for tanker repair jobs remains relatively good, while bulk carriers and container vessels are weak, which is in line with the broader shipping market outlook.
"Going forward, management will concentrate on mid-size ships, which still constitute the bulk of vessels in the market.”
While ship repair margins have been relatively healthy at over 30% ASL says it now has to work harder in order to secure customers. “We therefore believe that erosion in revenues and margins is inevitable,” wrote Rohan.
He is factoring in average gross margins of 28% from FY11 onwards, versus 31% previously, and have consequently reduced his forecasts by 11% and 16% for FY11 and 12, respectively.
Still, Rohan has a ‘buy’ call on ASL Marine because, according to him, it is undervalued.
“Despite difficult conditions facing shipyards, we maintain our positive outlook on ASL itself while holding a neutral view on the broader sector.
"ASL still trades at a significant discount to other yards, with a 2-year forward price-earnings ratio of 7.6 versus the industry average of 10.8x,” he wrote.
“Its price-to-book value (PBV) stands at 1.0x versus comparables at 1.6x. We maintain our BUY call, to a target price of $1.62, which in line with its peer PBV average.”
OCBC Investment Research says…
ASL shares recently traded at $1.08.
OCBC Investment Research analyst Low Pei Han has a ‘buy’ rating too but a more conservative fair value estimate of S$1.18.
She noted that another business segment, shipchartering, provided 39% of the group's FY09 gross profit and should continue to provide earnings support as the existing fleet is expanded.
”But we think price pressure on charter rates is likely to cap contributions from this segment.”
Recent story: ASL MARINE: $523-m shipbuilding orderbook until end-FY11