- We maintain BUY on Alam Maritim Resources (Alam) with a lower fair value of RM2.05/share (from an earlier

RM2.45/share), pegged to a FY14F PE of 16x – on parity to the oil & gas sector.

- We have reduced Alam’s FY14F-FY15F net profits by 8%-12% to account for lower contributions for the offshore installation & construction (OIC) division given the prospects of a slow roll-out in 1H2014 after the award of the Pan-Malaysia contracts late last year. Even though Alam is not one of the concessionaires, we have assumed that the group could secure some of the sub-contracting works as the pace of activity gains momentum.

- Alam’s FY13F earnings came in 10% below our forecast and 11% below street estimates of RM90mil largely due to one-off provisions for 2 court cases. But excluding the RM15mil legal provisions, the results could have been 7% above our estimates and within general consensus.

- The 2 legal cases involve: - (i) a RM8mil loss to the Inland Revenue for withholding tax arising from the chartering of a vessel from a third party in Singapore; and (ii) RM7mil loss for a law suit due to disputes on the termination of another third-party charter.

- Sequentially, the group’s 4QFY13 revenue was halved to RM86mil, largely due to seasonally weaker vessel chartering, transport & installation and underwater operations. Combined with legal provisions, this caused

net profit to drop by 70% QoQ to RM7mil.

- Recall that we had already cautioned in past reports that Alam’s 4QFY13 may be weaker QoQ due to:- (i) lower contributions from the offshore installation & commissioning (OIC) division; and (ii) lower margin from the offshore support vessel (OSV) segment as the two recently delivered anchor handling tug supply vessels

(AHTS) - with engine capacities of 12,000 brake horse power (bhp) and under the group’s 49%-owned JV with

Tabung Haji - may be under-utilised on spot charters currently.

- As Alam-Swiber failed to secure a package under the Pan-Malaysia transport and installation (T&I) umbrella concession late last year, the JV is actively seeking new projects in the region. Our channel checks indicate that the level of activities under the Pan-Malaysian T&I contracts this year could be lower than 2013 due to the initial design and engineering works in the programme. For its underwater division, the group hopes to secure additional jobs which were carried out earlier by the Offshore Works group.

- Even after our earnings cut, valuations remain compelling at an FY14F PE of 11x – 43% of the oil & gas sector’s 20x.

Source: AmeSecurities