News

ALAM announced that its wholly-owned subsidiary, Alam Maritim (M) Sdn Bhd has secured a contract from Petronas Carigali Sdn Bhd for the provision of Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) of 10” X 1km Pipeline for TCOT Effluent Discharge Line Extension Project.

The contract value is worth RM26m with duration of 4 months, commencing from March 2016 to June 2016.

Comments

This is positive to ALAM with its Underwater division continuing to secure jobs which will allow them to: (i) strengthen and establish them as an underwater services provider, and (ii) improve their vessel utilisation.

To-date, ALAM has announced six underwater services contract awards amounting to RM156.5m. The project is deemed within 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 7.2% in 9M15 from 11.7% a year ago, we believe the EBIT margin for this contract will be at the lower-end of the scale.

Outlook

Despite ALAM securing multiple underwater services projects, the overall underwater business segment margin was hit by low asset utilisation in its pipe-lay barge and newly acquired diving support vessel as the contracts secured are mostly short-term ones, thereby creating time gaps in between jobs (1-2 months).

We came to understand that its pipelay barge will have to incur approximately RM2m/month (including depreciation) and we believe the mobilisation cost and low utilisation rate will crimp its overall margin despite individual projects being profitable.

The OSV segment is expected to be challenging in 2016 given the current adverse movement in crude oil prices. On top of that, existing charter contracts of the local OSV players are not expected to be spared the renegotiation of rates by Petronas.

Forecast

No changes to our forecast.

Rating

Maintain UNDERPERFORM

Valuation

TP is maintained at RM0.32, pegged to our target PBV of 0.4x, 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-thanexpected margins on vessels, and (iii) Faster-thanexpected recovery in OSV market.

Source: Kenanga Research - 2 Dec 2015