Tuesday, February 11, 2014

ASL Marine- An asset-accretive, rather than earnings-accretive deal (CIMB)

ASL Marine
Current S$0.72
Target S$0.90
An asset-accretive, rather than earnings-accretive deal

We are neutral on ASL’s proposed acquisition of Miclyn Express Offshore’s (MEO) Batam yard in Indonesia for S$25.6m. Given the fierce competition from Chinese OSV builders, we do not think that the incremental capacity could capture a high-base load of work to be a substantial earnings driver. However, what ASL bought here is a good site with waterfront access. Moreover, MEO’s yard comes at a good price too. Pending further details from a potential commercial agreement between MEO and ASL, we keep our FY14-16 EPS and target price – still pegged to 0.9x CY14 P/BV (its 5-year mean). We retain our Add call with potential catalysts coming from shipbuilding sales, faster turnaround of Vosta and big repair jobs.

 
What Happened
ASL has agreed to acquire MEO’s Batam yard for S$25.6m (US$20m). The yard, which is adjacent to ASL’s yard, spans 12.2ha (35% of ASL’s Batam yard) with 220m-berthing facilities and two ship-repair slips. MEO is headquartered in Singapore and is an OSV charterer. After the recent private equity buyout, MEO has voluntarily delisted from the Australian Exchange. MEO has decided to dispose of its yard to concentrate on its core vessel-chartering business.  
 
What We Think
An asset-accretive, rather than earnings-accretive deal. Given the fierce competition from Chinese OSV builders, we do not think that the incremental capacity could capture a high-base load of work to be a substantial earnings driver for the group. Hence, it is no surprise that ASL is positioning MEO’s yard as a repair yard. Batam’s strategic location means that the island is a key maritime-repair hub. We estimate that the new yard could require S$20m-30m of repair turnover p.a. to break even. Some of the work could come from MEO as ASL seeks to be a preferred partner to maintain/repair MEO’s vessels. We understand that both companies are in talks. Though we think that the earnings upside is limited, we recognise that ASL has bought a good asset at a good price, with an independent valuer valuing the yard at S$33m. Essentially, ASL has bought a good site with waterfront access – something that is of a scarcity as practically all sites with water-front access on Batam are occupied.  
 
What You Should Do
Maintain Add. With a rising ROE profile that meets its COE, ASL offers value at 0.7x CY14 P/BV.



Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 29/01/14

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