- We maintain our HOLD rating on Alam Maritim (Alam) with a lower fair value of RM0.40/share (vs. RM0.60/share previously), pegged to an FY15F PE of 7x.

- This follows our cut in Alam’s FY15F-FY16F net profits by 14%-19% as we reduce our utilisation and charter rates assumptions. Excluding a net loss of RM5.8mil on foreign exchange, 1HFY15 core net profit of RM24.5mil came in below expectations, accounting for 41% of our FY15F estimate but is within consensus’ at 48%. As expected, no dividends were declared.

- YoY, the group’s 1HFY15 core net profit declined by 30% largely on the back of a 44% decline in pretax profits for the OSV segment due to lower utilisation rates and daily charter rates achieved. Contributions from the subsea/offshore installation & construction segment also dipped by 76% due to a slower job flow.

- Alam’s OSV utilisation rate stood at circa ~60% in 1HFY15, compared with an average of 71% in FY14. This was due to the drydocking of vessels and contract expiry for some of its jointly owned vessels at end-2014, which did not manage to secure new jobs. We have lowered our assumption for utilisation rates to 65% for FY15.

- 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, will provide some support. 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 oil majors have already begun negotiating for lower charter rates amid optimising their cost structure.

- We expect a pick-up in earnings momentum in the OIC division in 2HFY15, upon the execution of the remainder of the transport and installation contract secured with MMHE and Technip.

- Furthermore, the segment would also see revenue kicking-in in 3QFY15 from the recently won OIC contracts such as the subcontract works for Petronas’ floating LNG, subsea pipeline replacement for Chevron’s Prai terminal and Petronas Carigali’s splash zone structural repair and maintenance works.

- The stock currently trades at an FY15F PE of 7x.

Source: AmeSecurities Research - 26 Aug 2015