News  Last week, Alam Maritim Resources Bhd (ALAM) announced that its joint-controlled entity, Alam Swiber

Offshore (M) Sdn. Bhd. (ASO) has entered into a contract with Technip Geoproduction (M) Sdn. Bhd. and Malaysia Marine and Heavy Engineering Sdn. Bhd. (MMHE) for the engineering, procurement, construction, installation and commissioning work in Malaysian waters.

 The contract (inclusive of optional scope undertaken) is valued at approximately RM248m.

Comments  This is ALAM’s second contract award in FY14, which brings its YTD total contract wins to RM306.8m.

 Whilst we view this as a positive development (as it bumps up the order book of the Underwater division), we are Neutral on the contract as we have assumed c.RM150-200m revenue recognition for ASO in FY14-15 and this contract is within our estimates.

 Management guides that the contract performance is backloaded, with 20% in FY14 and the remaining 80% in FY15. Hence with a 15% nett margin, this contract could yield RM3.7m-14.9m in FY14-15 for ALAM (recall contract is a JV).

Outlook  ALAM has recently submitted the listing application for its proposed new private placement exercise (+123m shares) to Associated Land Sendirian Berhad and Caprice Capital Intl. Ltd. The proceeds will partly be utilised to acquire a Diving Support Vessel (DSV) which will enhance the margins and contract bid chances for Inspection Repair Maintenance (IRM) contracts to supplement the continued growth of its Underwater division.

 ALAM guided no more OSV vessel additions in the near future.

 For the pipelay barge 1MAS, ALAM is also targeting subcontract works, including prospects from the Pan Malaysia T&I players.

Forecast  We maintain our forecasts for now as we have already imputed such wins in our FY14-15 assumptions.

Rating Maintain OUTPERFORM

Valuation  Our target price is maintained at RM2.10, based on unchanged CY14 PER of 15x.

 Our ascribed PER is at c.15% discount to the 1.5 standard deviation forward level of 17.2x from 2006-2008. We believe the discount is justifiable due to uncertainties with regards to its underwater division, which could yield lumpy earnings going forward.

 ALAM’s ex-private placement target price is estimated to be RM1.86/share assuming no new Inspection Repair Maintenance (IRM) contracts within FY14-15.

Risks to our Call

 (i) Lower-than-expected OSV and underwater services division and (ii) lower-than-expected margins on vessels.

Source: Kenanga