Period     2Q13/1H13

Actual vs. Expectations   ALAM reported 2Q13 core net earnings of RM23.9m which brought 1H13 net profit to RM46.1m, coming in at 57.7% and 57.4% of our (RM81.9m) and consensus (RM82.4m) full year expectations respectively. 

We deem the earnings as within expectations as we are cautious on its 2H13 earnings, which could be weaker on the back of lower margins for the subsea services (ALAM is new to the underwater division works) and low utilisation rate in the OIC division.

Core net profit excludes a one-off vessel disposal gain of RM5.6m recognised in the quarter.

Dividends    No dividend was declared as expected.

Key Results Highlights  QoQ, the core net profit was up by 12.7%, mainly due to lower tax expense and minority interest within the  quarter. Core PBT of RM24m (excluding the one-off gain mentioned above) was marginally below the RM25.1m recorded in 1Q13 due to lower margins from the underwater division.

  YoY, as expected, 2Q13 posted a complete turnaround (+59%) from 2Q12 as: (i) the Underwater services turned in a profit (versus EBIT loss of RM2.5m in 2Q12); and (ii) both the wholly and jointly-owned OSV divisions saw marked improvements in margins and vessel utilisations. This is in-line with the trend featured by most domestic-centric OSV players in 2012

Outlook    ALAM is aiming to secure a total of RM2.5b contract sum in 2013. Expected OSV wins include those for: (i) ALAM’s whollyowned 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), (ii) its Inspection, Repair and Maintenance (IRM) segment; and (iii) third-party charters for accommodation barge or platform supply vessel contracts.

For its OIC business, ALAM is looking to either secure a portion of the upcoming Pan Malaysian Transportation and Installation project (to be awarded within the year), or at least work on subcontract works for the main incumbents, i.e.  SKPETRO (OP; TP: RM4.72).

ALAM does not rule out asset acquisitions via joint-venture for the inspection, repair and maintenance segment (i.e. diving support vessels) to heighten its chances for contract wins. 

Change to Forecasts   We maintain our forecasts as results are in line.

Rating  Maintain OUTPERFORM

Valuation     Our target price of RM1.91 is based on unchanged CY14 PER of 14x. 

Our ascribed PER is in line with the PER accorded to its competitor PERDANA (OP; RM2.40) and is justifiable given that it is still way below ALAM’s 2-year forward peak PER of 19.0x seen in 2007-2008.

Risks    (i) Lower than expected OSV utilisation 

(ii) Further continuation of its sluggish underwater services division works.

Source: Kenanga