Alam Maritim is recording better fleet utilization rates vs three months ago but its orderbook replenishment (excluding umbrella spot contracts recently secured) remains a key risk. Maintain SELL, and a TP of MYR0.63 (11% downside) as its OSV utilisation rate remains below our assumption of 70%. Any re-rating would depend on future contract wins or fleet rejuvenation plans as part of a capacity realignment.

• Orderbook update. W e estimate Alam Maritim’s (Alam) outstanding orderbook at MYR0.94bn as of end-March, ie 9% less than MYR1.04bn in Dec 2014. The orderbook breakdown was for offshore support vessels(OSV) (63%), subsea for Talisman (10%) and offshore installation and commissioning (OIC) (27%) for projects like SK316. We notice that the orderbook burn rate for subsea was higher at 34% vs 5% for the other two divisions, from Dec 2014 to the 1Q15 period. Its OSV orderbook provides visibility up to FY18 – not including the umbrella spot contracts secured between 29 Jan 2015 and 28 Jan 2017 (2018, if extended), as their contract value is uncertain at this juncture.
• Business updates. Alam expects to complete a USD60m acquisition of the first Malaysian-flagged diving support vessel (DSV), OLV Venture 1, during this month. The vessel may be used for the Talisman subsea contract in the interim, before tendering for long-term contracts in the region. This could provide a 5-10% lift to FY15F net profit, assuming four months of operational savings and a 51% ownership. As this will be classified as a JV investment, we still expect its net gearing to remain low, in line with FY14’s 0.1x. We understand so far there is a mix of higher/lower daily charter rates (DCR) for renewed contracts. Channelchecks reveal that while there may be discussions with oil majors for a 5-20% downward renegotiation of DCR, the industry is also negotiating for provisions like an upward revision of DCR if oil prices may recover.
• Maintain SELL, TP of MYR0.63 (at an unchanged 9x FY15F P/E). We believe Alam’s orderbook replenishment remains an issue and expect1Q15 results to be weak. We expect its OSV fleet utilisation rate to improve to 58% from 49% three months ago – which is still below our70% target. Any re-rating would depend on significant contract wins or the company realising its fleet rejuvenation plans. Alam has a few vessels aged >7 years. We retain our forecasts, pegged to our OSV utilisation assumption of 70%/72% for FY15/FY16 (management’sexpectation is >70%, vs ~85% historically). Our FY15 net margin is still subject to downside risk if utilisation rates remain low – for now, we have factored in operational savings and reduced interest expenses.