Excerpts from analyst's report

RHB Research analyst: Lee Yue Jer, CFA

Port Melville Fuel FacilityPort Melville fuel facility: Photo: Company
With Port Melville now being able to begin commercial operations, the wait is finally over. Maintain NEUTRAL, with a SGD0.15 TP (from SGD0.11, 4.5% downside) based on 0.75x P/NTA.

Our EPS forecasts are adjusted by -3%/13%/14% as we pencil in higher marine base earnings in FY17F(Jun)/FY18F. We remain cautious, preferring not to overestimate the marine base growth as the Australian offshore oil & gas scene remains muted.

» 1QFY16 still at breakeven level. AusGroup’s 1QFY16 PATMI of AUD0.3m was an improvement from its large core net loss in 4QFY15, but this took a 47% QoQ surge in revenue. On its AUD121m of engineering services revenue, the segment’s profit was only at AUD1.9m, implying a mere 1.55% net margin.

150 1Lee Yuejer"Although the orderbook stands at a still-healthy AUD389.9m, at such a margin (1.55%), its value-add to the group is limited. The company has finally secured the approval to operate the marine base commercially, which is a positive development." -- Lee Yue Jer, CFA (photo)

»  Both core industries are facing headwinds. AusGroup’s primary markets in mineral and energy are both still in the doldrums, and as it is operating in one of the highest labour-cost markets in the world, we do not expect the offshore industry to see a quick rebound. This may limit the near-term earnings growth of the marine base.

»  Cost-cutting measures necessary with c.AUD50m overheads. With the consolidation of the marine base, AusGroup’s fixed costs are now in the AUD50m range, before financing costs. This essentially consumes 79% of our gross profit forecast for FY16F. Management is targeting cost cuts of up to AUD10m.

»  Better investment options out there. While certain investors may like AusGroup for the high volatility of its stock and speculative action, we prefer companies with a stronger earnings base and higher cash flow and visibility.

Names like Ezion (EZI SP, BUY, TP: SGD1.60) and Triyards (ETL SP, BUY, TP: SGD0.94) come to mind. Both trade at about 0.5x P/BVs and at 3-6x P/Es. The investment thesis on AusGroup, in our view, remains premised on the marine base contributions overwhelming the low returns stemming from its lacklustre engineering services business.

Full report here.

Share Prices

Counter NameLastChange
AEM Holdings3.430-0.010
Avi-Tech Electronics0.265-0.010
Best World2.5300.010
Broadway Ind0.1080.001
China Sunsine0.465-
Food Empire0.735-
Fortress Minerals0.4000.025
Geo Energy Res0.320-
Golden Energy0.810-0.010
GSS Energy0.047-
ISDN Holdings0.6050.020
IX Biopharma0.120-0.002
Jiutian Chemical0.081-
KSH Holdings0.340-
Leader Env0.0720.010
Medtecs Intl0.148-
Meta Health0.021-0.001
Nordic Group0.470-
Oxley Holdings0.143-0.002
REX International0.2150.005
Sinostar PEC0.180-
Southern Alliance Mining0.610-0.015
Straco Corp.0.5000.020
Sunpower Group0.3950.020
The Trendlines0.098-
Totm Technologies0.1030.001
UG Healthcare0.176-0.003
Uni-Asia Group0.9050.005
Wilmar Intl3.960-0.070
Yangzijiang Shipbldg1.3000.010

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 2948 guests and no members online