- We maintain our HOLD rating on Alam Maritim (Alam) with a lower fair value of RM0.60/share (vs. RM0.67/share previously), pegged to an FY15F PE of 9x.

- This follows our cut in Alam’s FY15F-FY16F net profits by 3%-7% as we reduce our charter rates assumptions. Excluding a net loss of RM3.1mil on foreign exchange, 1QFY15 core net profit of RM11.7mil came in below expectations, accounting for 18% of our FY15F estimate and 20% of street estimates. As expected, no dividends were declared.

- YoY, the group’s 1QFY15 core net profit declined by 27% largely due to:- (i) lower utilisation rate its OSVs as several vessels were undergoing dry-docking for scheduled maintenance; and (ii) lower earnings contributions from the subsea/OIC segment.

- Going forward, we have assumed a marginally higher OSV utilisation rate of 73% in FY15F vs. 71% in FY14, as a lower number of vessels (5-7 vessels) will be dry-docked compared with 10 vessels in FY14.

- ~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 undergoing dry-docking. We understand that the group has already submitted tenders for these vessels.

- This will be further supported by the recent umbrella contract award by Petronas Carigali Sdn Bhd (PCSB) for the provision of spot charter for marine vessels, for which Alam was awarded seven of the eight packages. We have not factored this into our earnings 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.

- However, we see weaker charter rates ahead given that Petronas has already begun negotiating for lower charter rates amid its focus on optimising its cost structure which includes cutting capex by 15%-20%, and reducing opex by 20%-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 also intends to pursue smaller contracts with higher success rates.

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

Source: AmeSecurities Research - 22 May 2015