ASL’s 2Q09 results were in-line with expectations, with net profit up 11% y-o-y to S$16.3m. While the group reported lower repair revenue, this was offset by stronger chartering contributions. As the credit crunch persists, outlook for the group remains cautious. However, we believe ASL’s diversified revenue base, large outstanding orderbook, and healthy balance sheet should tide it across this wave of uncertainty. Maintain Buy.

Results in-line. ASL’s 2Q09 net profit came in at S$16.3m (+11% y-o-y) on revenue of S$107.7m (+13% y-o-y). While ship repair revenue declined unexpectedly due to fewer conversion jobs, this was offset by higher contributions from the ship chartering business on the back of a larger fleet and improved charter rates. Gross margin displayed improvement to 19.0% (+1.4ppt y-o-y), buoyed primarily by the charter business. ASL also continued to book gains of S$2.3m from disposal of 7 vessels (vs. 6 in 2Q08) as part of its fleet renewal program. However, management cautioned, that disposals might be slower going forward. Excluding disposal gains, recurring net profit would be c. S$14.0m, up 12% y-o-y.

Outlook. Looking ahead, shipbuilding order flows are expected to remain minimal as the credit crunch persists, while the low freight rate environment may see vessel owners defer non-crucial repair/maintenance work or reduce the scope of jobs performed. However, with its yard expansion on track and scheduled to be completed by end 2009, this may allow ASL to capture a larger share of the repair/conversion market, and mitigate the reduction in average job value.

Maintain Buy, TP unchanged at S$0.84. No change to our numbers and TP of S$0.84, maintain Buy. We continue to like ASL for its diversified revenue base, and visible earnings backed by an outstanding shipbuilding order book of S$663m, to be progressively recognised till FY11. Also, its balance sheet continues to be strong with current net gearing at 0.2x, expected to ease to 0.04x by end FY09.