News      Yesterday, Alam Maritim Resources Bhd (ALAM) announced that it had secured a 1-year extension of contract by Petronas Carigali Sdn Bhd (PCSB) for the provision of its workboat at a contract sum of RM38m. The contract period will be effective from 9 October 2013 to 8 October 2014.

Comments      We are not surprised by the news given that ALAM had previously guided that it was expecting such a project within a month from its last contract in Apr-13. This is ALAM’s 10th contract announcement for 2013, and brings its YTD total contract wins to RM1.05b (surpassing the cumulative contract wins of RM528.7m in 2012).

The daily charter rate (DCR) for the extension is estimated to around RM104.1k, higher than the estimated RM94.8k under the previous contract (initially won likely in Oct-12). We believe the increment is mainly also due to the charter rates being inclusive of catering, lodging and de-mobilisation costs.

We are positive on the win as it implies contract replenishment for ALAM and that its workboat vessels are well in demand.

Outlook     We understand that internally, ALAM is aiming to secure a total of RM2.5b contract sum within 2013.

These jobs will be for the likes of their wholly-owned OSVs (there are 7-8 vessel contracts up for expiry soon, whilst ALAM has taken delivery of two 12k bhp AHTS which is likely to secure contracts within the next 1-2 months' time); and the Inspection, Repair and Maintenance (IRM) sector where ALAM is hoping to land around RM750m contracts as well.

Forecast      We are keeping our earnings forecasts for now pending the company’s 1Q13 results, which will be announced by end-May (expected on the 26th of May).

Rating       Maintain OUTPERFORM

Valuation      Given that we are approaching mid-year, we have rolled forward our valuation basis to CY14. We are also raising our PER for the stock to 13x (from 12x previously) as the outlook for its wholly-owned OSVs (which are older and off lower-specifications vis-à-vis the associate and JV OSVs) and the underwater division (should ALAM be able to secure the bulk of its have IRM project targets) have improved.

On the overall, we have raised our TP to RM1.39/share (from RM1.15/share previously).

We believe our ascribed PER is justifiable given that it is still way below ALAM’s 2-year forward peak PER of 19.0x seen in 2007-2008.

Risks       1) Lower than expected OSV utilisation and 2) further continuation of its sluggish underwater services division works.

Source: Kenanga