News

ALAM announced that it has secured a provision of workboat contract from Petronas Carigali Sdn Bhd.

The contract value is worth RM54.2m with two-year duration, effective from 19 February 2016 to 18 February 2018 plus 1 year extension.

Comments

The contract award is positive to ALAM marking the first contract win in 2016. We gather that the contract is awarded for its jointly-owned vessel Setia Aman (5,220BHP & accommodation capacity of 180 men) which was off-hired a while ago.

Based on our back-of-envelope calculations, the implied DCR for the vessel is RM49.5k, about 30% drop from its previous contracted rate of RM70.0k. We believe this rate is reflective of current market condition as well as the latest rates negotiation with Petronas.

Assuming a net margin of 8%, we estimate the contract will contribute RM0.7m p.a. to the bottomline. No change to our forecasts as it is deemed within our average vessel utilisation of 65% for FY16 and FY17.

Outlook

The OSV segment is expected to be challenging in 2016 and 2017 given the current adverse movement in crude oil prices.

Despite ALAM securing multiple underwater services projects, which will result in segmental topline growth, we reckon margins are under pressure and will be hit by low asset utilisation in its pipe-lay barge and its 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 c.RM2m/month (including depreciation) and we believe the mobilisation cost and low utilisation rate will crimp margins despite individual projects being profitable.

Re-rating catalysts would arise should ALAM secure long-term contracts for its underwater assets to provide clearer earnings visibility.

Forecast

No changes to our forecast.

Rating

Maintain UNDERPERFORM

Valuation

TP is maintained at RM0.29 pegged to our target PBV of 0.3x, slightly lower than -2.0SD below its 8-year 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 - 15 Mar 2016