Period  4Q14/FY14

Actual vs. Expectations  Alam Maritim (ALAM) reported 4Q14 core net earnings of RM4.6m, raising FY14 core net profit to RM57.3m. This was below expectations, accounting for only 78.1% of our full-year forecast (RM73.4m) and 79.9% of consensus’ estimates (RM71.7m). Our estimate core FY14 net profit excludes a disposal gain of RM3.3m recognized YTD.

 The variance to our forecast is largely due to: (i) lower-than-expected vessel utilisation due to higher dry docking, and (ii) lower earnings contribution from subsea/OIC segment.

Dividends  No dividend was declared as expected.

Key Results Highlights  Core net profit was down 75.9% QoQ in 4Q14 due to weaker performance from the OSV segment driven by higher dry docking activities and lower contribution from the Underwater segment due to lesser work done.

 In 4Q14, CNP plunged 78.9% YoY underpinned by weaker Underwater division performance as a result of lesser work performed and higher interest costs incurred.

 YTD, core net profit slipped 36.8% as higher dry docking activities resulted in lower vessel utilisation (71.0%). EBIT margin for the OSV segment have also weakened YoY as a result.

Outlook  To-date, there are no signs of Inspection, Repair and Maintenance (IRM) and pipelay subcontract awards.

 The group is hopeful of securing a job for 1MAS S-300, its pipelay accommodation barge co-owned with Swiber in 1H15 to rejuvenate the prospects of Underwater division.

 Negotiations to purchase a Diving Support Vessel (DSV) and thirdparty liftboat opportunities are also still ongoing, believed to be at the advanced stage. Upon completion of the purchase, the group may enjoy cost savings on the Underwater projects currently utilizing chartered-in 3rd party vessel.

 OSV segment is expected to be challenging in 2015 given the current adverse movement in crude oil prices. On top of that, existing charter contracts by the local OSV players is not expected to be spared from the renegotiation of rates by Petronas.

 We believe the impact should be more severe on vessels under high DCRs (>USD2.2/bhp).

Change to Forecasts  We cut our FY15E CNP by 24.4% to RM58.6m as we lower our OSV utilisation assumption to 75.0% (from 80.0% previously) and factor in lower contribution from the Underwater division. We have also reduced DCR assumption by 25.0% for its AHTS fleet (6 vessels under JV) which have DCR at USD2.4/bhp whereby the cuts in rates are expected to be most severe.

 RM74.0m FY16E CNP is introduced based on: 80.0% OSV utilisation rate with DCR similar to FY15 and flattish growth factored in for the Underwater division. Higher vessel utilisation is expected in 2016 as we expect O & G activities to pick up by then.

Rating UNDERPERFORM maintained

Valuation  Our TP is reduced to RM0.44 (from RM0.59 previously) due to a cut in earnings based on unchanged CY15 7.0x PER.

 Our ascribed PER is at lower band of O&G small-mid cap peers downcycle valuation range of 7-8x in view of higher earnings uncertainties in near-term.

Risks to Our Call  (i) Better-than-expected OSV and underwater services division, (ii) Higher-than-expected margins on vessels, and (iii) faster than expected recovery in OSV market. 

Source: Kenanga