News     Yesterday, Alam Maritim Resources Bhd (ALAM) announced that it had secured a 5+2-year contract for its wholly-owned 5000bhp Anchor Handling Tug and Supply vessel (AHTS) from an established oil and gas company.

The contract is worth RM71.5m (for the full 7 years, of which 2 years are optional) and will commence in 2H2013.

Comments    We are pleasantly surprised by the swiftness of the contract awards, as we had expected most of the contracts to only emerge in mid-end 3QFY13. Hence, this is an encouraging turn of events and points towards other contracts also being quicker-than-expected.

This was ALAM’s 11 th contract announcement for 2013 and brings its YTD total contract wins to RM1.13b (surpassing the cumulative contract wins of RM528.7m in 2012).

The daily charter rate (DCR) for the contract is c.RM1.80/bhp, which is decent for a 5000bhp vessel. However, we suspect it is a slightly lower rate (from the market’s recent DCRs of c.2-2.2/bhp) largely due to the contract being a long term one in duration.

We believe that ALAM's outlook has definitely improved and we are heartened with its continuing wins. The continuing contract awards in the market also signify that there is potential for improvement in 2014 Offshore Installation and Construction (OIC) division.

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

These jobs will be for the likes of its wholly-owned OSVs (there are 6-7 vessel contracts up for expiry soon and ALAM has also taken delivery of two 12k bhp AHTS, which is likely to secure contracts within the next 1-2 months' time); and for its Inspection, Repair and Maintenance (IRM) segment.

For its OIC business, ALAM is looking to either land a portion of the upcoming Pan Malaysian Transportation and Installation (T&I) project that should be awarded within the year, or at least work on subcontract works for the main incumbents i.e. SKPETRO (OP; TP: RM4.57). 

Forecast    Due to our higher optimism for its OIC division, we are introducing our FY13-14 OIC division earnings of RM3m and RM15m (on the back of revenues of RM30m and RM150m) respectively. 

Our FY13-14 net profit projections have accordingly been raised by 3.5% and 13.1% respectively.

Rating  Maintain OUTPERFORM

Valuation     In tandem with our higher optimism for the OIC division, we are raising our PER valuation to 14x (from 13x previously).

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.

The changes to our earnings forecasts have accordingly led to our target price being adjusted higher to RM1.91 (from RM1.57)

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

Source: Kenanga