- We maintain our HOLD rating on Alam Maritim (Alam) with an unchanged fair value of RM0.40/share – pegged to an FY15F PE of 7x.

- MARC has downgraded the rating of Alam’s RM500 million Sukuk Ijarah Medium- Term Notes to AIS from A+IS, while the outlook was revised to stable from negative. The rating action affects RM115mil of currently outstanding sukuk issued under the rated programme.

- The rating downgrade was driven mainly by Alam’s weakened business risk profile arising from a tough operating environment for OSV providers, as the group’s performance has been affected by a decline in contract orderbook and the lower charter rates for its vessels.

- However, MARC views Alam’s established position in the OSV segment with a lengthy operating track record and sizeable fleet of 44 vessels to be supportive of the group’s ability to weather prevailing challenging conditions in the oil and gas sector.

- We expect the rating downgrade to have a minimal impact on the group given that the coupon rate for the RM115mil outstanding sukuk has already been predetermined. Additionally, we understand that there are no significant capex plans ahead.

- Furthermore, Alam’s balance sheet remains strong after progressively paring down its debt, with its net gearing at 0.08x as at June 2015 from 0.23x as at June 2014.

- However, we remain cautious on the outlook for the group in the near term given that the OSV market remains in a lull, where contract awards have been slow against the backdrop of a slowdown in upstream activities.

- Overall, Alam has faced a daily charter rate (DCR) reduction of 3-10% for eight of its vessels with existing contracts, while the DCR for new contracts is expected to be reduced by up to 20%.

- The stock currently trades at a fair FY15F PE of 9x.

Source: AmeSecurities Research - 17 Nov 2015