Alam  obtained  an extension  from Exxon Mobil  for two of its  currentlychartered  offshore  support  vessels  (OSVs).  The  2-year  long-term contract is worth MYR75.2m.  Maintain NEUTRAL,  with  our  MYR1.35  FV implying  a  14x  P/E  and  4.6%  upside.  We  keep  our  forecast,  as  the extension  is  in  line,  and  still  believe  that  earnings  volatility  and execution risk offset re-rating catalysts or synergistic partnerships.

Contract  details.  Yesterday,  Exxon  Mobil  Exploration  and  Production Malaysia opted to extendits  existing charter  contract  with Alam Maritim (Alam),  for  an  anchor handling tug (AHT) and an  accommodation barge. The total contract value was  MYR75.2m, with a long-term charter periodof two years effective from 12 Oct 2014 until 11 Oct 2016. 

Within  our  assumptions.  We  maintain  our  FY14/FY15  earnings estimates as we had assumed the contract extensions in our forecasts. Moving forward, the company’s next phase of growth involves acquiringa diving support vessel to  enhance its  subsea unit  and positioning itself for inspection, repair & maintenance contracts worth c.MYR2bn. 

Maintain NEUTRAL and FV of  MYR1.35,  pegged to an unchanged 14x FY15F P/E, in line with the 14x-16x  for  OSV/servicing companies  in  our coverage. Our FV reflects a higher share base of 924m, upon completion of a 15% share placement to a major shareholder related to Hong Leong Group,  in  June.  While  potential  contract  wins  and  strategic  tie -ups (leveraging  on  its  shareholders’  network)  could  provide  ample opportunities  in  terms  of  synergistic  O&G  capabilities,  we  believe  the execution risks and earnings volatility offset such re-rating catalysts.

Risks  include  partnership  risks,  execution  risk  and  weaker  OSV margins. Based on Alam’s 2013 annual report, about 31 of its 44 vessels are  on  long-term  charters  –  which  imply  that  as  high  as  30%  of  its current  fleet  is  susceptible  to  uncertainties  in  garnering  favourable charter  rates  upon  the  renewal  of  contracts.  We  understand  from  a recent meeting with management that there are  still no positive signs of a  pick-up  in  additional  transport  and  installation  (T&I)  activities.  We expect its  pipelay 300-men accommodation barge (1Mas-300) to remain underutilised throughout the remainder of FY14.  

Source: RHB