- We maintain BUY on Alam Maritim Resources (Alam) with an unchanged fair value of RM2.05/share, pegged to an FY15F PE of 14x – an 18% discount to the oil & gas sector’s 17x.

- Alam’s 50%-owned Alam Swiber Offshore (M) Sdn Bhd has recently entered into an agreement with Technip and

Malaysia Marine & Heavy Engineering (MMHE) to undertake a contract potentially worth up to RM248mil (including optional works) to provide engineering, procurement, construction, installation and commissioning works.

- This contract, expected to commence immediately, mostly involves the transport and installation (T&I) of facilities and equipment for the Tapis enhanced oil recovery works off Terengganu, in which the Tapis Q and Tapis R structures have been completed by MMHE.

- We understand that Alam expects 20% of the contract value to be recognised this year and the balance in FY15. Based on a pretax margin of 15%, we estimate that this project could generate earnings of RM3mil in FY14F and RM11mil in FY15F.

- But we maintain our forecasts, which have already assumed revenue of RM150mil-RM250mil for FY14F-FY15F for the T&I and underwater services divisions.

- But this contract augurs well for Alam’s prospect which is underpinned by an expected ramp up in new orders for the T&I and underwater divisions, which registered a loss of RM9mil in 4QFY13 due to low seasonal orders.

- Separately, we remain positive on Alam’s expected acquisition of a 51% stake in a US$80mil diving support vessel (DSS), which could garner daily charter rate of US$80k-US$120k. Expected to secure utilisation rate of 75%, the DSS will be employed to support the group’s underwater inspection, repair and maintenance (IRM) works.

- The group hopes to secure a significant portion of Malaysia’s prospective IRM jobs, potentially worth RM1.8bil- RM2bil over 3 years. Recall that these activities were earlier awarded to Offshoreworks Group, which had since faced financial distress.

- Hence, this DSS is likely to be long-term EPS-accretive and underpins a strong likelihood of upgrades to consensus earnings over the next 1 year-2 years.

- Additionally, the group is exploring other upstream activities such as jack-up rigs, which could introduce additional rerating catalysts. Valuations are compelling at an FY15F PE of 11x – 0.6x of the oil & gas sector’s 18x.

Source: AmeSecurities