News  Yesterday, Alam Maritim (ALAM) announced that it has received a Letter of Award worth USD9.6m (RM33m) from a local oil and gas services company for a demobilisation contract for a floating storage facility.

 The contract is expected to commence on Oct-14 and last until Nov-14.

Comments  This is ALAM’s 5th contract win this year; taking cumulative wins to RM486.5m.

 We believe that the contract is a 3rd-party charter. Assuming it commands EBIT margins of 10-15%, this would lead to RM3-5m EBIT in 4Q14, which is within our estimated RM13.5m for 2014 just for 3rd-party works.

Outlook  We note that the outlook for ALAM seems muted in the short-run. To-date, there is no sign of Inspection, Repair and Maintenance (IRM) and pipelay subcontract awards, which can rejuvenate the prospects of the Underwater division.

 Negotiations to purchase a Diving Support Vessel (DSV) and third-party liftboat opportunities are also still ongoing with no firm deadlines at this juncture.

 Besides that, we note the OSV market now has a wider choice of modern and new vessels given that other OSV players have undergone fleet renewal programmes and rejuvenated their fleet profile (i.e. Icon Offshore; Jasa Merin) making the segment increasingly competitive.

Forecast  As we have already forecasted for third-party contracts this year; we are maintaining our FY14-15 net profit estimates.

Rating UNDER REVIEW (from MARKET PERFORM)

Valuation  We are switching our call to UNDER REVIEW (from MARKET PERFORM) pending ALAM’s 3Q14 results, which should be announced within Nov-14.

 We note from our rounds with OSV players that the short-term outlook for tenders and awards could be sluggish at least until 1Q15 given the monsoon season and Petronas’ aim to conserve costs, especially in light of the current crude oil price weakness.

 Whilst we have already trimmed our target PER for ALAM by 1x in our 4Q14 Oil and Gas Sector Strategy; we are inclined to cut our PER further to 12x (from 14x) firstly due to the weaker domestic sentiment and additionally the lack of near-term catalysts for the ALAM (as there is no new fleet thus far).

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

Source: Kenanga