We gather from our last meeting with management that Alam Maritim (Alam) should fare well in 2013. Although the main concern is the lack of jobs at its OIC division, its thriving OSV unit and potential IRM
contract wins by its subsea division should enable the group to deliver 28.3% earnings growth for FY13. We reiterate our BUY call on the stock, with an unchanged fair value (FV) of RM1.25, pegged to 13x
FY13 EPS.

Two more rounds of OSV contracts expected. We understand that earnings contributions from Alam's offshore support vessel (OSV) division will be intact, underpinned by better utilisation rates. The current utilisation rate for its wholly-owned vessels is 60% (85%-90% of the utilised vessels are on long-term charters), while that for vessels held by its jointly-owned entities is 90%. Our channel checks suggest that Alam may see two more rounds of OSV contracts to be awarded this year, from which the company stands to gain in the form of: i) hook-up and commissioning (HUC) contracts, and ii) 34 vessels from Petronas' drilling department.

RM150m-200m IRM jobs expected this year. We gather from management that Alam will bid for inspection, repair and maintenance (IRM) jobs with the country's production sharing contractors (PSCs) spanning the next 3-4 years. While its contenders include SapuraKencana Petroleum (BUY, FV RM3.39) and Petra Energy (BUY, FV RM1.71), management is confident that it would be able to secure at least a MYR150m-MYR200m package involving only inspection and maintenance works given Alam's strong track record. Assuming a net margin of
15%-20%, this job may enhance our earnings forecasts by some 4%-7% for FY13 and FY14. 

OIC division the weak link. Ironically, we are less concerned with Alam's offshore, installation and construction (OIC) division as it is supposed to have an orderbook that will last till April. As all works relating to its previous contract were completed in 4QFY12, this unit is likely to register a MYR4m-MYR6m loss per quarter moving forward in the absence of new jobs.

Still a BUY. All in, we are heartened by the company's momentum in winning contracts YTD across all divisions and expect more to come. Given that earnings growth is likely to be intact, we retain our BUY recommendation on Alam, with an unchanged FV of RM1.25, which translates into a potential upside of 38.9% based on its current share price.

Source: RHB