Pleasant surprise - Management has turned positive on outlook. ASL’s 4QFY09 revenue of S$102.2m was in line with our expectations. Adjusting for an impairment charge of S$3.2m as a prudency move towards bad debts from Shiprepair activities, ASL achieved an operating profit of S$16.6m. The only dampener was its dividend payout ratio of 16% vs. management’s guidance of 20%. We were pleasantly surprised by management’s optimism about the business outlook, especially for FY11 and beyond. This was a change of view from the previous guidance three months ago. As such, we revise up our FY10 and FY11 orderbook assumptions from S$150m to S$250m and S$300m respectively. We increase our FY10 net profit by 15% and introduce our FY11 estimates. Ascribing P/E of 6x to FY11 EPS, our target price is raised to S$1.41 (from S$1.07 previously). Maintain BUY.

Shiprepair and Shipchartering revenue were better-than-expected. While revenue was within expectations, the revenue mix slightly differed from our forecasts. Shipbuilding revenue of S$60m was lower than expected, but this was offset by higher-than-expected Shiprepair revenue (S$21m) and Shipchartering revenue (S$22m). The bulk of Shiprepair revenue came from a tanker-to-FSO conversion project while Shipchartering was boosted by an increased fleet.

Shiprepair improved margin was due to better cost containment and operation efficiency. Gross profit margins were well within management’s guidance, though we were slightly surprised that Shiprepair GP margin of 33% was an improvement of 5.8bp YoY.

Optimism in outlook for Shipbuilding and Shiprepair. As at 30 Jun 09, ASL has an outstanding orderbook of S$523m for 33 vessels. Management estimates that approximately 56% of the orderbook would be recognised in FY10, with the remainder in FY11. It appears upbeat in securing new orders for higher capacity tugs and offshore construction vessels. As for Shiprepair, management is optimistic on the long-term outlook, underpinned by an increasing global fleet and regulatory requirements. With the completion of two new docks in 1QFY10 and expansion of graving drydock in 3QFY10, management is confident that the Batam yard will be able to accommodate the repair and conversion works of larger vessels.