ASL Marine Ships in Lower Margins in Second Quarter

ASL Marine Holdings (SGX: A04) released its second quarter earnings for its 2014 financial year on Thursday evening. The company is an integrated marine services group which operates in 4 segments: shipbuilding; ship-repair and conversion; ship-chartering; and engineering.

Currently, ASL owns a total of 4 shipyards located in Singapore, Indonesia (Batam) and China (Guangdong) which caters to customers from Asia, Europe, Australia and the Middle East. With a focus on Indonesian operations, it can be comparable to the likes of its close competitors like Marco Polo Marine (SGX: 5LY) and Jaya Holdings  (SGX: J10).

For the three months ended 31 Dec 2013, ASL posted revenue of S$190.4 million, a phenomenal jump of 129.5% over last year. The improvement came about primarily because of higher contributions from the shipbuilding, ship repair and engineering segments that were partially offset by the ship-chartering segment. In turn, the growth in the first three segments were driven by new contributions from VOSTA LMG, which was acquired in December 2012.

Despite the surge in revenue, gross profit for the quarter dipped by 5.1% from S$19.4 million to S$18.4 million on a year-on-year basis. The poor performance can be tied back to two main events: 1) the S$4.7 million provision for additional costs attributable to the delay in delivery for certain offshore support vessels; and 2)subcontractor costs for completed projects in prior years were being added back to ASL’s income statement.

Meanwhile, the company’s net profits also tumbled by 26.4% from S$10.6 million to S$7.81 million, mainly due to the 131.2% surge in administrative expenses to S$8.3 million that were brought about as ASL absorbed VOSTA LMG’s costs.

As of 31 Dec 2013, the company’s balance sheet contains S$463 million of total borrowings and cash of S$64.5 million. That’s a weaker balance sheet compared to a year ago as ASL carried total borrowings and cash of S$368 million and S$63.4 million, respectively, back then.

The company’s high debt levels may warrant a closer look as it is at a high multiple of earnings. In particular, ASL has borrowings of S$253 million that are repayable within a yearof 31 Dec 2013. This might raise concerns about the possibility of increased interest expenses that could ding profits in the future. That’s because ASL would have to refinance its borrowings if it’s unable to repay and in the process, it might have to borrow at higher interest rates than before.

Mr. Ang Kok Tian, Chairman and Managing Director of ASL Marine, commented on the results: “The revenue growth momentum over the past few quarters endorses our strategy to focus on the offshore marine sector. In line with our belief, we continue to see opportunity for growth in the oil and gas industry, and are taking appropriate steps to exploit these opportunities.”

Ang added: “In this respect, our build-to-stock program is intended to capture rising demand for generic OSVs, while the traditional build-to-order model is adopted for more customized vessels. This will enable us to capture economy of scale thereby maximizing returns in a shorter time while keeping risks low.”

ASL last closed at S$0.72 and is trading at a multiple of 6.8 times trailing earnings, which is a tad lower as compared to the average earnings multiple of 8.6 that the market’s awarding other local offshore support vessel players. The dividend yield of the share is at 2.78%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.