Kenanga Research & Investment

Alam Maritim Resources - Secures second Underwater Contract

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Publish date: Tue, 26 Mar 2013, 09:42 AM
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News  Yesterday, Alam Maritim Resources Bhd (“ALAM”) announced that it had been awarded an underwater 
services contract worth RM182m from an independent oil and gas exploration and production company. 
 The contract is for a primary period of three years with an extension option of another year. 
 
Comments  This is ALAM’s seventh contract announcement in 2013, bringing its YTD total contract win to RM936.5m 
(surpassing the cumulative contract win of RM528.7m in 2012). 
 
 We are positive on the contract as it implies that the underwater division has started to see stronger contract flows. It also signifies healthier job replenishment for the underwater division, which is considered a key risk division for ALAM in 2013.
 
 The contract will yield revenue of RM60m per annum and we understand that the EBIT margin could be in the region of 10-15%. Assuming as such, the contract will yield RM6.0-9.1m per annum. 
 
 We also estimate that it will bump up ALAM’s order book to RM1.3b. 
 
Outlook  We believe the OSV market is finally turning around and expect it to remain vibrant (similar to the heightened activity seen in 2007-2008) and as such,the stock is poised for a re-rating. 
 
 A buoyant future outlook is expected with further OSV awards expected from the other PSC players such as Murphy Oil. (The market talk is that there will also be more awards from PCSB as well.)
 
 It seems as though there will be more underwater services (OIC and Subsea) contracts going ahead, and this could propel ALAM’s FY13-14 earnings. 
 
Forecast  As the YTD underwater services wins and expected EBIT margin have been stronger than anticipated, we
are: 1) increasing our FY13-14 underwater division revenue recognition by 25% per annum to RM99.0m and RM108.9m respectively (from RM79.2m and RM87.1m previously); and 2) raising the division’s FY13-14 EBIT margin to 10% (from 7.0% previously). 
 
 This has resulted in an overall increase in our FY13-14 net profit forecasts by 5.7% and 5.0% to RM75.4m and RM84.3m respectively. 
 
Rating Maintain OUTPERFORM 
 
Valuation  At an unchanged PER of 12.0x, we are raising our TP to RM1.15 (from RM1.09). 
 
 Our ascribed PER is justified given that it is still at a discount to ALAM’s 2-year forward average PER of 12.6x and its peak of 19.0x seen in 2007-2008. 
 
Risks  1) Lower than expected OSV utilisation and 2) a continuation of its sluggish underwater services division works.
 
Source: Kenanga
ALAM (5115)
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