ABG Shipyard - CitiGroup

Buy: Raising Estimates on Improved Earnings Visibility
> What's new — ABG Shipyard recently announced that it has secured an order worth US$139m from Essar Shipping for the construction of 4 bulk carriers. This follows the US$13m repeat order that the company recently won for the construction of one APS tug vessel for Lamnalco, Cyprus.
> Order visibility improves — ABG's total unexecuted order book now stands at c.Rs33bn (5x FY07E sales) vs. Rs25bn earlier. With order backlog extending well into FY10 and orders for the company's upcoming Dahej facility yet to be completely tied up (5 slots are still available even after the recent order wins), earnings visibility for the company over the next 3 years has improved significantly – we expect ABG to deliver an EPS CAGR of 46% over FY07-09E.
> Revising FY09E earnings by 21% — We are raising our FY09E earnings by 21% factoring in improved earnings visibility following the order wins; FY08E earnings, which would not be affected by the Dahej expansion, remain relatively unchanged. Our earnings forecasts do not currently factor in any upside from yet-to-be announced rig orders. However, these are unlikely to have any significant impact on FY09 performance.
> Maintain Buy/Medium Risk — We believe fundamentals for Indian shipbuilders remain strong, driven by: (1) the robust E&P cycle ensuring strong demand in the OSV segment and (2) the continued tightness in the global shipbuilding sector. ABG's expansion plans remain on target and are well-timed to capture the continued upswing in the shipbuilding cycle. Maintain Buy / Medium Risk with a target price of Rs430.

Buy/Medium Risk 1M
Price (12 Apr 07) Rs350.35
Target price Rs430.00
Expected share price return 22.7%