- We maintain our HOLD rating on Alam Maritim (Alam) with an unchanged fair value of RM0.67/share, pegged to an FY15F PE of 9x.

- As expected, Alam was awarded an umbrella contract for the provision of spot charter for marine vessels by Petronas Carigali Sdn. Bhd. (PCSB) for its operations in Malaysia.

- However, our earnings are unchanged for now as the contract value is not fixed and will depend on the actual number of days the vessels are on hire based on a call-out basis by PCSB.

- The umbrella contract is for a two-year period starting from January 2015, with an option for a one-year extension. Alam was awarded seven of the eight packages which allow the company to provide marine vessels for the following categories: AHTS (60MT, 120MT and 150MT), straight supply vessel, fast crew boat, workboat, work barge, general purpose/utility vessel and platform supply vessel.

- Going forward, we have assumed a marginally higher OSV utilisation rate of 73% in FY15 vs. 71% in FY14, as a lower number of vessels (5-7 vessels) will be dry-docked compared with 10 vessels in FY14. We understand that ~70% of its fleet are currently contracted (of which half of these are on long-term contracts of more than one year), while the rest are dry-docked.

- However, we see weaker charter rates ahead given that Petronas has begun negotiating for lower charter rates amid its focus on optimising its cost structure which includes cutting capex by 10%-15% in the next two years and reducing opex by 30%.

- We expect a pick-up in earnings momentum in the OIC division in 2HFY15, upon the execution of the RM248mil transport and installation contract secured with MMHE and Technip. Alam intends to pursue smaller contracts with higher success rates. To-date, the group has secured an RM30mil contract, where the margin was more than 50% due to early completion.

- Alam is close to securing a diving support vessel (DSV), as the group has just managed to secure financing recently. The group expects to take delivery of the DSV in 2QFY15. Alam hopes to secure a significant portion of Malaysia’s prospective IRM jobs, potentially worth RM1.8bil-RM2bil over three years.

- The group’s order book stands at circa RM1.1bil (excluding the umbrella contract), of which ~50% are from OSVs, while its tender book stands at RM2bil.

- The stock currently trades at an FY15F PE of 10x.

Source: AmeSecurities