Period     1Q13/3M13

Actual vs. Expectations     Alam Maritim Resources’ (“ALAM”) 1Q13 core net earnings of RM22.2m was above both ours and the consensus expectations, accounting for 29.5% and 28.6% of ours (RM75.4m) and the market (RM77.9m) full-year projections.  

We reckon the variance to our projection was due to the stronger than expected: 1) Underwater Services division (US) earnings due to a contract won in Mar-13 and 2) higher jointly-controlled entity earnings. 

Dividends    No dividend was declared as expected.

Key Results Highlights    QoQ, the net profit was up by 30% due to healthier EBIT margins in both the offshore support vessel (“OSV”) and underwater services (“US”) divisions on account of the higher third-party vessel work for the OSV division and the contribution of an underwater services project (won in Mar-13) in the current quarter. This mitigated the sequential drop in both the associate (-28.0%) and jointly-controlled  entity earnings (-62.3%) where 4QFY12 was a bumper quarter due to the execution of some one-off contracts for the  offshore installation and construction (“OIC”) division.

YoY, 1QFY13 posted a complete turnaround (+>100%) from 1QFY12 as both the OSV and US divisions saw marked improvements in contract flows and wins during CY12. Recall that CY11 was a very sluggish year for contract wins, which impacted the earnings in 1QFY12.   

Outlook    ALAM is hoping to secure a total of RM2.5b in total contract sum within 2013. These jobs are likely to be made up of the likes of (1) OSV contracts (both owned and third-party); (2) Inspection, Repair and Maintenance (IRM) projects where ALAM hopes to land around RM750m in contracts; and  (3)Installation and Transport contracts from the Pan-Malaysia Installation & Transport bids that are likely to be called within the year. The OIC division’s success in 2014 hinges on this. We highlight have not imputed such OIC contracts into our FY14 estimates as yet.

Change to Forecasts    We have fine-tuned our FY13-14 forecasts. Our main adjustments are: 1) a lower revenue from its wholly-owned OSV vessels as we believe that most of the earnings will come from the associates and JV divisions; 2) a higher EBIT margin of 20% for the Underwater Services division (from 10% previously) as we were too conservative previously  and 3) higher FY13-14 associate and JV earnings.  

On the overall, we have increased our FY13-14 earnings by 5% and 12.7% from RM75.4m and RM84.3m previously.

Rating  Maintain OUTPERFORM

Valuation     Our changes have resulted in our target price increasing to RM1.57 (from RM1.39) on an unchanged 14x PER on FY14 EPS of 12.1 sen.

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; 2) further continuation of its sluggish underwater services division works and 3) lower than expected IRM wins.

Source: Kenanga