Maintain SELL and MYR0.11 TP

Swiber’s plan to restructure and operate under judicial management could see Alam buying out its stake in their JVs or a new partner(s) taking over from Swiber. The JVs are working well. Alam has the financial clout to leverage on any fire-sale of the JVs. Overall, these JVs are small relative to Alam’s entire operations. Optimising costs and OSV utilisation and preserving cash flows remain key. Surviving through this down cycle is paramount. Our TP is on 10x 2017 PER (unchanged).

3 options to consider from Swiber’s impasse

Swiber’s plan to restructure and operate under judicial management technically triggers the termination of its JVs with Alam: (i) 51%-owned Alam-Swiber DLB 1 (L) Inc; owns & operates 1-Mas 300, a pipelay barge and (ii) 50%-owned Alam Swiber Offshore (M) S/B; a ship operator. There are 3 possibilities for Alam to consider: (i) buy out Swiber’s stakes, (ii) dissolve the JVs, or (iii) find a new JV partner(s) to replace Swiber.

Impact and opportunity

Alam, in our view, has the financial clout to capitalise on a potential fire-sale transaction of Swiber’s JV stake. Its net debt/gearing level was at MYR99m/12% as at Mar 2016. The JVs’ gross debt exposure is low, at USD17m. These JVs, headed by Alam, are doing fine. 1-Mas 300 is currently deployed on the PFLNG job. It is estimated that the JVs could generate a combined net profit of MYR8m-10m in 2016 of which Alam’s share is c.MYR4-5m. Our earnings forecasts for Alam have reflected this.

Riding out the cyclical downturn is key

Optimising OSV utilisation remains a key agenda for 2016. We understand that Alam’s overall fleet utilisation average has improved from 51% in 1Q16 to 55% in 1H16 (OSV break-even: 50%). Current OSVs DCRs of USD1.20-1.40/bhp are respectable under the current condition. The tender pipeline for OSV is decent but awards are few. Alam is also part of the tender party for the new Pan Malaysia T&I and 4 IRM jobs.

Source: Maybank Research - 3 Aug 2016