News

ALAM announced that its wholly-owned subsidiary, Alam Maritim (M) Sdn Bhd has secured a sub-contract from Petronas Floating LNG 1 (L) Ltd (PFLL) to perform floating liquefied natural gas (FLNG) offshore works relating to final positioning and mooring system hook-up. The work scope includes flexible riser installation, pre-commissioning and commissioning of pipeline, pipe-line ends terminal (PLET) and riser from KAKG to FLNG (Package No. 2) for PETRONAS Floating LNG-1 Project

The contract value is worth RM53.5m with duration of 10.5 months, effective from 15 June 2015 to 30 April 2016.

Comments

The contract award is positive to ALAM as its Underwater division continues to secure jobs which allow them to strengthen their profile as an underwater services provider.

To-date, ALAM has announced five underwater services contract awards amounting to RM130.5m. This is deemed within our expectation as we had forecasted RM150m orderbook replenishment in FY15 with 70% burn rate.

Given the significant drop in the Underwater division’s EBIT margin to 4.4% in 1H15 from 16.5% a year ago, we believe the EBIT margin for the contract will be at the lower-end of the scale. At this juncture, most asset players are under pressure to maintain their asset utilization and are likely to compromise on the DCRs amid the continuous slowdown across the entire oil and gas industry.

Outlook

We should see some improvement in its Underwater division’s earnings performance in 2H15 should the jobs secured this year are executed according to schedule.

The group has announced the purchase of a Diving Support Vessel (DSV) on 24th March 2015 to replace its chartered-in DSV currently working for a subsea job, indicating more efficient cost structure for its subsea segment in the future.

The OSV segment is expected to stay challenging in 2015 given the current volatile crude oil prices. On top of that, we believe the coming 3Q15 results should fully reflect the current charter contracts by the local OSV players after renegotiation of rates by Petronas.

No official announcement of specific contracts from the Umbrella Contract by Petronas secured earlier this year has been made, but we anticipate more clarity in 2H15 when the market stabilizes.

Forecast

We maintain our forecasts for now.

Rating

Downgrade to UNDERPERFORM from MARKET PERFORM due to the share price surging from its low at end-August, rendering the risk-reward less favourable.

Valuation

TP is maintained at RM0.39 pegged to our target PBV of 0.5x, slightly lower than -1.5SD below its 8-year’s mean to account for weaker prospect in the near-term.

Risks to Our Call

Upside Risk: (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 Research - 22 Oct 2015