Thursday, May 27, 2021
Gulf News - A Dh3.5b UAE Navy deal fires up Abu Dhabi Ship Building's stock
Vijay Valecha, Special to Gulf News May 27, 2021
Abu Dhabi Ship Building Co. stock has given a stellar performance with a 44 per cent gain this month. The Dh606 million market capitalization firm is engaged in new builds, repair, maintenance, refit, and conversation of naval and commercial vessels.
It is 40 per cent owned by UAE defense conglomerate EDGE and 10 per cent by Abu Dhabi Government. The stock gain was on the back of the company signing a contract to build four Falaj 3-class offshore patrol Vessels for the UAE Ministry of Defence and Navy. The Falaj-3 patrol vessel can be used to carry out a range of missions and can operate in both littoral and blue waters and tackle the challenges of asymmetric warfare. The news was a well-anticipated one as, during the fourth quarter of 2020, ADSB had received a Letter of Award to this effect.
Still, the finalization of the deal is a big moment. The total programme value could reach a cumulative Dh3.5 billion, including one for integrated logistics support (ILS) and spare parts supply. ADSB will make all four hulls in Abu Dhabi and will be responsible for integrating systems. This contract is the biggest ever received by it, and hence is a morale booster for the company, which had seen sagging revenues for the past five years.
For a perspective, ADSB had annual revenues of Dh241 million in 2020, so the total programme value of Dh3.5 billion is indeed a game-changer. It reinforces ADSB's status as a leading regional shipbuilder. The deal will help it build a sustainable and profitable next five years.
Management has reduced the cost base a lot by getting rid of the uneconomic floating dock, which was sold for Dh34.5 million. The projected gain on disposal is Dh17.5 million. The removal will lead to a significant saving in rental payments and improve the financial profile. As a part of its diversification initiatives, ADSB is trying to generate more revenue from commercial repair and maintenance.
At the same time, ADSB is also planning to reduce the dependence on UAE Navy, its primary customer, by venturing into new product categories. It has for the first time domestically developed a 12-metre fast interceptor boat and a 16-metre fast patrol boat. Different prototypes and designs are also being developed, which will be completed this year. These designs will be showcased to a number of overseas navies and coast guards, and it already has a strong export sales pipeline.
ADSB is on the right track with a host of new initiatives, and in a few years, we could see a transformed company. The signing of the contract to build four offshore patrol vessels is a new beginning.