ASL Marine -
Execution blip a one-off
1HFY14 core net profit of S$7.1m (+12% yoy) formed 48% of our FY14 forecast and was slightly below expectations. 2QFY14 made up 20% of our FY14 forecast. The negative deviance stemmed from higher taxes and shipbuilding losses. We lower our FY14 EPS by 4% to factor in the weaker set of results and cut our FY15-16 EPS by 16% as we scale back our profitability expectations. Viewing 2Q execution issues as one-offs, we maintain our Add call with a slightly lower target price, still pegged to 0.9x CY14 P/BV or its 5-year mean. Catalysts could come from shipbuilding orders and earnings strength.
2QFY14 results highlights
Strong turnover negated by execution; cautious guidance. ASL generated strong revenue growth of 129.5% yoy for 2Q as all divisions made positive contributions. However, the operating performance was marred by a one-off execution blip from its shipbuilding division. Higher-than-expected taxes also eroded profitability. Shipbuilding incurred a slight gross loss of S$0.4m due to engineering and design faults, resulting in a provision of S$4.7m. Management has guided that there should not be further provisions. Meanwhile, ASL was markedly cautious during the results briefing, citing margin pressures from rising labour costs and competitive pressure from China yards. This has prompted us to scale back our profitability expectations for future contracts, resulting in the earnings cut (see overleaf for details).
Ship repair picked up shipbuilding slack
Ship repair revenue increased by four-fold to S$54.8m due to the completion of rig repair works of S$40.2m in 2Q. Its gross profit was not as impressive, increasing by 1.5x to S$10.5m as more of the group's overheads were charged to this segment, as a result of declining shipbuilding activities. Otherwise, its margin performance could have been better.
Recent positive developments
Vessel sales + new yard. After 1.5 years of order drought, ASL managed to secure the sales of six vessels worth S$97m. It also recently agreed to acquire neighbouring Miclyn Express Offshore's Batam yard due to the waterfront access it offers. ASL intends to re-position that yard as a topside-fabricator.
Publish date: 14/02/14