Alam Maritim - Weak turnaround from offshore construction delay Buy

- We maintain BUY on Alam Maritim Resources, but with a lower fair value of RM0.85/share, pegged to an unchanged FY12F PE of 12x – at a 25% discount to the oil & gas sector’s 16x. 

- Our lower fair value stems from a 5%-14% reduction in FY12F-FY14F net profits due to a 20% cut in earnings contributions from the group’s offshore installation & construction (OIC) division. 

- While management maintains its view that Alam may yet be able to achieve our earlier FY12F net profit of RM65mil, we have adopted a more conservative stance as its 1QFY12 result came in below expectations, accounting for 11% of our earlier FY12F net profit and 12% of street’s RM60mil. The group did not declare any interim dividend, as expected.

- Alam registered a 1QFY12 net profit of RM7mil vs. a loss of RM1mil in 4QFY11, largely due to the absence of a writedown of the Alam-TH JV one-off capitalised interest expense in 4QFY11. But the turnaround in earnings was weaker than expected due to continuing delays in the recognition of OIC earnings. 

- While fleet vessel utilisation rate has remained stable at 78%, revenue from the offshore support vessel segment dropped 33% QoQ to RM49mil due to the lapsing of 5 vessels on short-term charter contracts. But overall vessel utilisation is still maintained because the vessels under the joint-ventures with CIMB and Tabung Haji have been fully chartered out during the quarter. 

- Management expects a strong turnaround in the OIC division, with the group eyeing additional RM200mil fresh contracts in this segment. 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 global utilisation has tightened. We note that day rates have been slowly rising on tightening global vessel utilisation.

- Despite the weaker-than-expected 1QFY12, we view that the expected recovery in charter rates in 2HFY12 coupled with the OIC turnaround to be a strong re-rating catalyst for Alam. 

- As such, we maintain our view that the company’s earnings recovery is intact with an undemanding valuation of FY12F PE of 7x – at the lower end of its historical PE PP 12247/06/2013 (032380) band.   

Source: AmeSecurities