OUTPERFORM - Maintained
| S$0.65 - TP: S$0.86
▊ ASL is getting more aggressive by embarking on four build-to-stock AHTS in its Batam and Chinese yards, in view of the bottomed-out vessel prices. This can be a game changer for its shipbuilding business. Vessel sales and strong orders can catalyse the stock. FY13 core profit was 10% below our forecast and consensus due to the higher tax rate of 18% (pre-tax loss from its subsidiary, Vosta). On a normalised tax rate (10%), the core profit would have met expectations. ASL declared a dividend of S$0.02. We cut our EPS by 4-8% for FY14-16 due to the higher taxes. We maintain our Outperform rating and target price (still based on 0.9x CY13 P/BV, its five-year mean).
ASL’s yards are operating at close to full capacity. Its order book stood at S$370m, with S$250m expected to be recognised in FY14. The enquiries for OSVs and hybrid terminal tugs (higher-value vessels) are strong. Although the financing terms are competitive at its Chinese yards, ASL is likely to stick to its current payment terms of 20/80 with some at 10/90. The ship repair pipeline should also see some high-value projects, especially for the FSOs from Indonesia.
In view of the bottomed-out vessel prices in the AHTS market, ASL has entered the build-to-stock model to expand its shipbuilding margins. It will start with four generic-designed AHTS vessels (6,000BHP and 8,000BHP) and one maintenance work vessel. These vessels will cost S$85m in total and will be financed through ASL’s S$170m bonds. The construction will begin in 1QCY14 and is expected to be completed by 1QCY15. A successful sale of these vessels can fetch net margins of 30%. Its shipbuilding gross margins on the order book model yields an average gross margin of 12.5%. However, its net gearing shot up to 0.95x from 0.53x in FY12 due to the higher debt secured in view of this programme.
The stock is trading at 0.68x P/BV (1 s.d. below its 5-year mean). At 7.3x CY14 P/E, it is also below Sg-OSV players’ average of 8.6x.
Publish date: 29/08/13