-  We maintain BUY on Alam Maritim Resources (Alam) with an unchanged fair value of RM2.45/share, pegged to a FY14F PE of 16x – at parity to the oil & gas sector.

-  Alam has secured a straight supply vessel charter at RM38mil for a firm 3-year period with an option to extend for another year. This was awarded on a negotiated basis by a local O&G company.

-  As this charter will be serviced by Alam’s 5,000bhp wholly-owned anchor handling tug supply (AHTS) vessel, the charter works out to US$1.65/bhp. We understand that this contract, which is a continuation of services for the incumbent client, was under an earlier AHTS charter at US$1.90/bhp.

-  Although at a lower rate for a straight supply contract, we understand that the loan for this older vessel has been repaid. Without interest costs, we understand that the net margin for the charter remains largely intact.

-  But this does not mean that the other vessels in Alam's fleet may revert from an AHTS charter to straight supply contracts as the rates hinge on the clientele's requirements, age of vessels and available capacities.

-  With 16 charters for AHTS and straight supply vessels secured so far this year, we understand that the group’s vessel utilisation rate for its wholly-owned fleet has risen QoQ from 70% to 80% currently with the rest of the vessels on spot charters.

-  YTD, Alam has secured contracts worth RM1,278mil, of which 81% are marine charters for vessels that are either wholly-owned, under JVs or for third parties. For comparison, Alam’s current order book of RM1.3bil has surpassed its 2008 peak of RM1.1bil. We maintain FY13F-15F earnings with assumed higher vessel utilisation rates of 80%-90% as well as underwater/offshore installation & construction orders of RM300mil-RM500mil.

-  We understand that Alam hopes to secure RM1.2bil- RM1.5bil contracts for underwater services, which were earlier extended to Offshoreworks Group, currently in financial distress. Hence, the group may enter a jointventure with Pacific Radius to acquire two diving support vessels to service its subsea inspection, repair & maintenance contracts, which could easily double prospective net margins from 10%-15% currently. Additionally, the group hopes to secure part of the concession for the Pan-Malaysian transport and installation umbrella contract, worth RM3bil-RM5bil annually, which may be opened for bidding later this year.

-  Valuations are compelling at an FY14F PE of 10x – way below the oil & gas sector’s 17x.

Source: AmeSecurities