News  Yesterday, Alam Maritim (ALAM) announced that it had signed a Joint Venture Agreement (JVA) with Wasco Energy Ltd (a subsidiary of (WASEONG; OP; TP: RM2.17)) to assume 51%- stake in Alam-PE (an investment holding company that holds 100% stake in 5 vessels that ALAM currently has 49%-stake with CIMB-PE).

 The execution of the JVA has been approved by the respective Boards and is not conditional upon the approval of the AMRB’s shareholders or any approvals being obtained from any relevant authorities.

 The shareholders further agreed that despite the above equity participation of 51:49 (ALAM:WASEONG), Alam-PE shall be operated as a jointly controlled entity.

Comments  We were not surprised by CIMB-PE’s exit as it is usual for private equity funds to have short-term holding horizon; but we were pleasantly surprised that WASEONG was the acquirer of the stake given its forte is in pipe-coating.

 Nonetheless, we deem this acquisition a positive for ALAM as we believe its interest are more aligned with WASEONG’s given the latter is an oil and gas company with serious aspirations of growing its oil and gas offshore exposure.

 Moreover, WASEONG’s current involvement with Petra Energy (PENERGY; NON RATED) could spell business opportunities for ALAM indirectly.

Outlook  ALAM is targeting Inspection, Repair and Maintenance (IRM) and pipelay barge business prospects in the near future.

 In the near-term, the company is looking to purchase a Diving Support Vessel (DSV) to enhance its chances for the IRM jobs and enhance underwater margins given it will internalise 3rdparty charter costs it is paying for a vessel on its Talisman subsea work.

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

Forecast  FY14-15E forecasts have been fine-tuned by 2.0% and 3.4% respectively for the interest savings post the completion of the private placement in 9 June.

 However, we have not revised our earnings for the 49-51% change in equity stake as we deem it to be a marginal difference.

 However, we highlight these earnings have not imputed any incremental change in underwater margins should ALAM purchase a DSV.

Rating Maintain OUTPERFORM

Valuation  Post the private placement exercise, we have revised our TP to RM1.86m (from RM2.09) based on unchanged CY15 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 ALAM’s underwater division, which could yield lumpy earnings going forward.

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

Source: Kenanga