- We maintain our HOLD rating on Alam Maritim Resources (Alam) with a fair value of RM0.40/share. While we have cut Alam’s FY15F-FY17F core net profits by 7%-59% on lower utilisation and charter rates assumptions, our fair value is maintained with a rolled forward FY16F PE of 8x, which implies a 58% discount to FY15F book value.

- Excluding a foreign exchange gain of RM25mil on the receivables of 4 vessels operating in the Middle East, 9MFY15 core net profit of RM13mil came in below expectations, accounting for 28% of our earlier FY15F estimate and 37% of consensus. As expected, no dividend was declared.

- YoY, the group’s 9MFY15 core net profit fell by 76% largely on lower daily charter rates (DCR) and losses from joint ventures, which have utilisation rates at 55%. This was exacerbated by lower EBIT contribution from the subsea/offshore installation & construction (OIC) segment, which dipped by 38% due to a slower job flow.

- Excluding a forex gain of RM19mil, Alam just broke even in 3QFY15. Alam’s OSV utilisation rate rose to 70% in 3QFY15 from 55% on more spot charters but DCR has fallen with the ringgit depreciation cutting anchor handling tug supply vessel rates to US$1.20-1.30/bhp from US$1.60/bhp earlier this year. Additionally, almost half of the vessels in Alam’s JV were unutilised, causing the RM3mil associate loss in 3QFY15.

- The vessel requirements from Petronas Carigali’s (PCSB) umbrella contract for 7 packages, awarded in March this year, have been slow. Recall that 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 group has secured RM191mil in contracts since the beginning of the year, of which 74% stems from the subsea/ OIC segment. This includes the second RM54mil subcontract for the Petronas floating LNG 1 (FLNG) project.

- Alam will be taking delivery of the US$60mil diving support vessel (DSV), 51:49 owned with Singapore-listed Vallianz Holdings Ltd, in February this coming year. We understand that Alam has already secured a contract for this vessel, which is being retrofitted in Batam currently.

- For 4QFY15, we expect a loss as vessel activities tend to wind down during the monsoon season while half of the group’s vessels is currently on spot charter. Additionally, there may be asset impairments as 30%-40% of the fleet may be unemployed.

- Nevertheless, this could be partly cushioned by the subsea/OIC division, as contribution may be sustained from the completion of the RM22mil pipeline replacement work from Chevron and the first RM49mil sub-contract for the Petronas Floating LNG project. The stock currently trades at a fair FY16F PE of 10x vs the sector’s 17x.

Source: AmeSecurities Research - 26 Nov 2015