ASL Marine Trading at Attractive Valuation

Crackling with activities amid yard reorganisation
ASL Marine’s Batam Shipyard continues to bustle with activities. Since our last visit two quarters ago, the yard has made significant progress in facility construction and reorganisation. The administration office is now housed in a new building while its new 150k deadweight tonnes (DWT) dry dock continues to be busy servicing Aframax tankers. The 220m finger pier to enhance berthing capacity is completed and enables ASL to take on more business flows. ASL is also exploring the possibility of upgrading the dock to cater to Very Large Crude Carriers (VLCC) as well.

Record order book is stacking up
ASL’s record shipbuilding order book continues to pile up. The increasing offshore orders underscore the buoyancy of the offshore sector and ASL’s success in moving up the value chain, which will translate into greater order values and better margins. As at end-June 2007, ASL’s order book stood at a record high of S$622m, of which 43% will be recognised during the course of the year. An additional order worth S$48m was subsequently secured.

Buoyant demand fuels bonanza
The significant improvement was driven by both higher charter rates (up 10-20% Y/Y) and a 25% expansion of the fleet from 126 vessels (53 tugs & 73 barges) to 158 vessels (61 tugs & 97 barges). Buoyant market conditions have led to a more aggressive group strategy in this business segment. The group could see a fleet size of around 170 vessels in the next year or so, with plans to add at least another 10 vessels during the course of the year. Rates-wise, there will be a number of renewals in the coming fiscal year, which augurs well for the group.

Pan Assets stake sale could lead to disposal of ASL Energy
In late July 2007, ASL announced the divestment of its 50.2% stake in Pan Assets Pte Ltd and Pan Assets International (the 2 entities involved in the exploration, development and operations of Indonesian coal mines) back to Dato Low’s Bayan Resources for US$10.5m, amounting to a small gain. We believe this sets the stage for the eventual divestment and unlocking of value in ASL Energy.

Still trading at attractive valuation
With the recent price retracement, ASL is offering good value, trading at 9x FY08 PE and 8x FY09 PE. Our target price of S$2.34 is based on 14x FY08 PE (0.8X PEG). Reiterate BUY.