Still a Challenging Industry

As the OSV demand outlook continues to look lacklustre with DCR remaining low, we do not see a turnaround in profitability for Alam. We believe the EBITDA margin of 52% recorded in 1Q18 is not sustainable and more of a one-off event. Due to reallocation of resources, we cease coverage on the stock.

In-line With Expectations

1Q18 revenue increased 6% yoy to RM21.4m mainly due to better offshore marine services revenue, which increased by 45%, but was partly offset by weaker subsea/offshore installation and construction (OIC), which was lower by 39%. Core losses narrowed 28% yoy mainly due to lower operating costs in 1Q18.

Seasonally Weaker

Sequentially, 1Q revenue fell 50% to RM21.4m dragged down by weaker subsea/OIC segments, which slumped by 87%. However, operating costs managed to come in 71% lower, which was one of the main drivers of the lower core losses, which narrowed from RM62m to RM7.3m. While the reason is unclear to us at this juncture, we believe this is more of a one-off event as the EBITDA margin of 52% is much higher than previously.

Cease Coverage

Due to reallocation of resources, we cease coverage on Alam. Our last rating on Alam was a SELL with a target price of RM0.11 based on 0.2x 2019E P/BV.

Source: Affin Hwang Research - 25 May 2018