Hold ABG Shipyard Ltd - PINC Result Review

ABG Shipyard's (ABGS) Q4FY10 net sales (non-subsidy) grew by 43% YoY to Rs4.7bn, in-line with our estimates of Rs4.8bn.However, higher raw material costs impacted operating profits, which increased by 6% to Rs642mn (estimated Rs940mn). ABGS booked subsidy income of Rs470mn in the quarter. Depreciation charges surged by 88% YoY to Rs122mn, impacting net profits growth. However, lower tax rates of 12.7%on account of MAT credit helped net profits to remain flat YoY at Rs528mn (estimated Rs647mn). For FY10, net sales (non subsidy) grew by 21% YoY to Rs16.3bn and net profits increased by 34% to Rs2.3bn.

• Operational performance impacted sequentially
• Expect higher subsidy dues in FY11
• Strong orderbook provides revenue visibility

Outlook: We expect sales to grow by 30% and 20% respectively over the next 2years. Subsidy income is also expected to increase as most of the eligible assets reaches completion. Subsequently, net profits is expected to grow by 24% and 10% respectively to Rs2.8bn and Rs3.1bn. However, ex-subsidy net profits would constitute only half of the total profits.

VALUATIONS AND RECOMMENDATION

We maintain our 'HOLD' recommendation on the stock with a price target of Rs271, discounting its FY12E ex-subsidy EPS of Rs30.1 by 9x.

Source : Equity Bulls

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