ASL Marine: 2Q09 Results - BUY (Kim Eng)

Previous day closing price: $0.45
Recommendation: Buy (maintained)
Target price: $ (maintained)

ASL Marine posted a 2Q net profit of $16.3m, up a steady 10.6% over 2Q08, and against revenue growth of 7.7%. The margin improvement came from the shipchartering business, where management has indicated that rates have stayed firm.

Segmentally, shipbuilding and charter turnover were maintained at a steady level sequentially, as shipbuilding continues to convert on its orderbook of S$663m, and utilisation of charter vessels remains high. Shipbuilding margins were maintained at 9.8%, while shipchartering saw gross margins improve to 35.6% due to a firming up of charter rates. However, shiprepair saw a sequential decline in turnover due to recognition timing, but margins remained very healthy at 32.1%.

For shipbuilding, ASL will be recognising approximately S$172m worth of revenue in 2H09. However, it has not received any new orders recently, which is in line with the cautious outlook for shipowners in the current economic climate. However, ASL so far has had no issues with the usual worries currently plaguing the industry: it has not seen any order cancellations nor has any of its customers approached it for re-negotiation or delayed delivery. The overwhelming majority of its orderbook has already secured financing as well.

ASL has advised that its shiprepair business remains healthy, with a high level of enquiries. However, ASL is bracing for potential slowdowns through lower contracts and/or lower scopes of work, which it believes is inevitable. For now, the repair of specialised offshore vessels in particular remains in demand, and ASL will continue to capitalise on this. Its Batam yard expansion is also proceeding on track.

Our FY09 net profit of $72.2m is maintained, as is core net profit at S$60.2m, which excludes an S$11.3m one-off gain in 1Q09. Our target price of S$1.62 still stands, based on 8x core FY09 earnings. This implies significant upside for an undervalued stock, trading at just 2.3x core PER and a Price to Book of just 0.5x.