Revenue decreased 20.5% yoy to $97.0m in 1H09, attributable to lower sales from subsidiaries and no progressive recognition of shipbuilding revenue during the period.

Gross profit margin increased 5.3 ppts to 23.8% in 1H09 from previous year due to absence of shipbuilding projects with low margins. EBIT achieved a stunning 28.3% increase to $6.1m as a result of cost reduction measures, outstripping 2.5% growth in gross profit.

Nevertheless, the bottom line was negatively affected by dreadful performance of its associate, SSH. SSH results were dragged down by a provision for inventory write-down, which was brought about by a softening of steel prices globally.

Trim FY09-10 sales estimates by 15% as contribution from shipbuilding projects tumbled and fewer vessels will be delivered during the period.

Increase GPM estimate by 1.5-2.0 ppts due to the decline in sales from loss making shipbuilding business.

Reduce other operating expenses by 30% in FY09-10 as no significant inventory obsolescence is expected to incur.

Cut share of profit contribution from SSH further to $0.5m in FY09 and $2.0m in FY10.

Improving operating results and stronger second half: ATS made progressive improvement in its operating results over the past few quarters. Despite the decline in sales due to fewer deliveries of vessels, gross profit margin has increased from 16.1% in 2Q08 to 24.2% in 2Q09 while operating margin improved from 4.1% in 2Q09 to 6.9%. We believe ATS will rake in higher profit in second half as second half is seasonally stronger than the first half for ATS business. Worst is over for SSH, Joint Venture taking off steadily: Notwithstanding that its bottom line is heavily affected by SSH, we believe the worst is over for its associate.

The provision for inventories write-down, which dragged down SSH's profit, should not be significant in coming quarters. In addition, the effort to venture into Middle East market has borne fruit. ATS's joint venture in Qatar has been awarded a contract of about S$21m for the civil works of seven dried sludge storage warehouses in Qatar. Bulk of the revenue will be recognized by this year and the profit margin is expected to be in the high single digit range. Maintain BUY recommendation with price target of $0.30: We continue to like ATS for its solid business as it has weathered the global financial turmoil and emerged unscathed from the worst recession in decades. Following the uplift in oil and gas industry valuation, we increased our earning multiples from 3.5x PER FY09 to 8x PER FY10, thus deriving a target price of S$0.30. Downside will be limited by sustainable dividend payout.