News Alam Maritim Resources Bhd (ALAM) announced that it had been awarded a contract from an established oil and gas company for the provision of one unit straight supply vessel.

 The firm duration of the contract is three years with an extension option for another one year.

 The total value of the contracts is approximately RM37.9m (inclusive of the optional periods if exercised by the Client).

Comments  We are positive on this win as it illustrates that ALAM has minimal issues with offshore support vessel (OSV) contract replenishment.

 This will be Alam’s 16th contract announcement in 2013; bringing YTD wins to RM1.3b (this surpasses the cumulative contract wins of RM528.7m in 2012).

 According to the announcement, this contract implies revenue of RM9.4m per annum. Assuming an average EBIT of 17.3% over FY13-14 this implies a contribution of c. RM1.6m per annum.

Outlook  ALAM is aiming to secure a total contract sum of RM2.5b in 2013. Expected OSV wins include those for: (i) ALAM’s wholly-owned OSVs (there are 6-7 vessel contracts expiring 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 the subcontract works for the main incumbents, i.e. SKPETRO (OP; TP: RM4.72).

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

Forecast  We are maintaining out FY13-FY14 net profit forecasts for now given that we have already assumed 85-90% utilization for Alam’s OSVs.

 The upcoming 3Q results will shed more lights on Alam’s profitability and margins.

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; TP: 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 to Our Call (i) Lower than expected OSV utilisation

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

Source: Kenanga