Alam Maritim - Dampened by JV write-off, offshore construction delay BUY

We reiterate our BUY rating on Alam Maritim Resources, with an unchanged fair value of RM1.00/share, pegged to an FY12F PE of 12x – at a 25% discount to the oil & gas sector’s 16x. 

Alam’s FY11 result was 54% below our earlier FY11F net profit of RM28mil and 64% of street’s RM36mil. Thisstemmed largely from:

1) a RM15mil expense for capitalised interest on two 12,000 brake horse power vessels, currently being built in China, which will be injected into the 50:50 joint venture (JV) with Tabung Haji (TH). The sale and leaseback agreement was signed in 4QFY11, while the vessels will be completed by the end of 2012.

2)  a RM5mil additional interest charge for the 50:50 JV for the Alam-Swiber derrick lay barge as the commencement of the RM230mil offshore installation construction (OIC) contracts in East Malaysia has been delayed from September last year to March-April this year.

Alam registered a 4QFY11 net loss of RM1mil vs. a net profit of RM13mil in 3QFY11, largely due to the Alam-TH JV one-off capitalised interest expense, delay in OIC construction work and 27% QoQ seasonal drop in marine charter revenue. Although FY11 net profit came in way short of expectations, we expect a significant recovery in 1QFY12 as the group’s vessel utilisation has remained firm at over 80%. Hence, we maintain FY12F-FY13F net profits, based on vessel utilisation rates of 80%-90% and EBIT margins of 55%. We introduce FY14F net profit with  a growth of 7% based on a 5ppt- improvement in vessel utilisation rate.

We expect the turnaround in the OIC division to be  a strong re-rating catalyst as this division had been a significant drag to earnings since 4QFY10. This recovery should be sustainable as Alam is also aggressively bidding for more OIC jobs and could be awarded another sizeable contract early next year. Recall that Alam secured its maiden major OIC contract with Samsung worth US$18mil for Sabah Oil & Gas Terminal (SOGT).

We also expect Alam to be awarded fresh charters for its idling and spot-chartered vessels as utilisation in the sector has tightened. We note that day rates have been slowly rising on tightening global vessel utilisation. 

As such, we maintain our view that the company’s earnings recovery is intact with undemanding valuations of FY12F PE of 9x – at the lower end of its historical PE band. This is underpinned by improving vessel utilisation rates with its recent charters, coupled with a likely turnaround in its offshore construction division.


Source: AmeSecurities