Alam Maritim has received a USD9.56m (MYR31.7m) letter of award(LOA) to demobilise a floating storage facility. Maintain NEUTRAL, withour TP trimmed to MYR1.12 (from MYR1.35), implying a 4.7% upside.Although this LOA and a possible short-term contract for 1MAS-300are positive surprises to us, we believe they are insufficient to lift the stock’s sentiment amid the current cautious outlook. 

USD9.56m (MYR31.7m)  demobilisation job. Alam Maritim is undertaking a short-term contract to demobilise a floating storage facility for a local oil and gas (O&G) services firm. The company commenced work on 6 Oct and expects to complete all works by 15 Nov. 

Our view. Although no further details are given, we believe this contract could share some similar work scope with a decommissioning contract carried out by IEV (IEV SP, NR) for M3nergy’s Perintisfloating, production, offloading and storage (FPSO) located offshore Terengganu. The USD15m (MYR50m) contract was carried out from Jan-Mar 2014. IEV carried out the project’s engineering capabilities with vessels from a partner, EMAS-AMC Pte Ltd. Based on this example, we expect Alam Maritim to perform the engineering phase of the work via a 50% jointventure with subsidiary Alam Swiber Offshore SB. Similarly, we understand that it may likely rely on third-party vessels rather than its own for the job. Although the profit contribution falls under the subsidiary, we expect ~10% bottomline margins to the group given that demobilisation is among Alam Swiber’s offshore, installation and construction (OIC) works capabilities. 

Forecast changes. We raise our FY14F EPS by 5% to account for thetwo positive surprises as: i) we did not factor in the demobilisation jobearlier (we assumed Alam Swiber would remain idle for the rest of 2014), and ii) we understand that its 1MAS-300pipelay barge (assumed idle previously) is likely operating on a short-term accommodation contract. 

Maintain NEUTRAL, TP reduced to MYR1.12 (from MYR1.35). We keep our NEUTRAL call but lower our TP to MYR1.12 as we trim our P/E assumption to 12x (from 14x) given the sector-wide de-rating amid a more cautious O&G sector outlook and lack of contract news flow. Based on Alam Maritim’s 2013 annual report, 31 out of its 44 vessels are on long-term charters, implying that 30% of its current fleet are susceptible to uncertainties in garnering favourable charter rates upon contract renewal. Further risks include partnership risk, execution risk and weaker offshore support vessel (OSV) margins.

Source: RHB