News   Last Friday, Alam Maritim Resources Bhd ("ALAM") announced that its wholly-owned subsidiary, Alam Maritim (M) S/B had secured an extension contract worth RM33.6m, which would be its second contract win for the week. The contract is to charter out one unit of accommodation work barge for an extended period of 1 year from 12 January 2013 to 11 January 2014.

Comments  We are positive on this contract win as it continues to show the capability of ALAM to retain its existing chartering client even though the daily charter rate (DCR) of RM93.3k being  lower than the market rate by 11% (as compared to another contract it won in last May at a DCR of RM105k).

We believe that the DCR above is lower given that it is an extension of the previous primary contract it won with the same client that is now nearing its completion tenure. We believe that the DCR is lower as due to reciprocity in return to its client, whereas the project is approaching its completion, which has lesser personnel on the barge.

To recap, the above contract is the second extension of the primary contract that ALAM secured in March 2010, which was valued at RM43.2m for a primary period of 13 months (with an initial extension of 1+1 year). The DCR for the primary period above was, as typical, at a higher premium rate of RM110.8k  

In the first extension in March 2011, ALAM was awarded the contract for a sum of RM70.5m for the expanded period of 21 months starting in April 2011. This extension contract, however, offered a higher DCR of RM111.9k.

On a whole, the chartering contract now is worth RM147.3m for a period of 46 months (instead of the initial value of RM123m for 37 months). Hence, this actually brought its average DCR to RM106.8k, which matches the current market rate of around RM105k.

Given the net margin assumption of 26%, we have projected a net profit of RM4.5m from the extended contract, which we had factored in into our earnings estimates earlier.
Outlook

We remain optimistic on ALAM and are looking forward to the company announcing more contracts win from the  upcoming OSV contract awards by Petronas.

Forecast   Maintaining FY12-14E earnings.   Rating  MAINTAIN OUTPERFORM

Valuation  Maintaining TP of RM0.92, based on a PER of 10x on its FY13 EPS.  

Risks  The overall profitability in OSV being hit by other loss-making business units within the group.

Source: Kenanga