ASL Marine

ASL Marine: Two offshore support vessels were cancelled by ASL Marine's customer, of which one will be ready for operation by end-1Q15 and the other in 3Q15. Unless the vessels are sold, any progressive revenue booked will need to be reversed. Assuming an estimated construction period of ~12-18 months and selling price of $16m for each vessel, we estimate that ASL Marine will need to write back up to $12-17m in FY15, or 2.4-3.3% of FY14's top line. Meanwhile, management sees a high demand for the vessels and has reportedly commenced discussions with potential buyers and/or charterers. Otherwise, the group cites the impact of the rescission is unlikely to be significant. However, as oil prices begin to normalize between the US$70-$80/bbl range, we view that gross margins for shipbuilders are expected to narrow, weighed by higher material and sub-contractors' costs, lower chartering utilisation and higher upkeep costs and port charges. In addition, operating margins are anticipated to remain weak, due to depressed pricing and rising labour costs. At the current price, ASL trades at a hefty trailing P/E of 14x, versus its 5-year historical average of 7.8x.