Alam's 1QFY12 results were below estimates, mainly due to the lower contribution from the offshore support vessel as well as underwater services divisions. Hence, we are downgrading our FY12 earnings by 18% to factor in the poorer-thanexpected results. Nevertheless, we expect more new vessel contracts in 2H12, especially as more marginal oilfields and brownfield services jobs are dished out. Upgrade to Buy from Neutral given that  the share price has retraced quite significantly, but at a lower fair value of RM0.70 (previously RM0.85), based on the existing PER of 12x FY12 EPS.

Below estimates.The 1QFY12 results were below consensus and our expectations, making up 10% and 14% of consensus and our FY12 forecasts. Overall, the poorer-thanexpected results were due to the lower contribution from its offshore support vessel  and underwater services divisions. The underwater services division  encountered a setback arising from stretched project execution timelines, which had in turn affected the timing in the recognition of revenue. Nevertheless, although its 1QFY12 revenue of RM55.3m was 38.2% lower  q-o-q, the company  still managed to record a net profit of RM7.4m,  which was an  improvement  from  its  break-even position in 4QFY11, during which it was struggling with  forex exchange losses  after selling off its  vessels to its associate companies. 

More new vessel contracts seen from 2H12. We think so because we are expecting Petronas to award the next marginal oilfield contract soon and any predevelopment would require vessel support services. Also, with the brownfield players expecting more new tenders to be out for grab soon this year and once they had gotten the contract awards, there would be budget for them to spend on brownfield activities, including the use of vessel services. Most of these brownfield contracts, although are new only when being awarded to new players but they are mostly extension of existing work done. Hence, all these fast moving activities would benefit the vessel players like Alam Maritim almost immediately.

Downgrading FY12 earnings by 18%. Despite being bullish on Alam's outlook, we are downgrading our FY12 earnings to reflect the poorer-than-expected 1QFY12 results. Upgrade to Buy. As the share price has dropped significantly in tandem with the global market selldown, we believe  that  the stock  is looking  attractive again. Hence we are upgrading our call to Buy from Neutral. However, we  are  tweaking  downwards our fair value to RM0.70 (previously RM0.85), based on  the  existing PER of 12x FY12  EPS,following our earnings downgrade.

Source: OSK