We remain positive on ALAM after our recent meeting with management
as its recovery story is still on track. ALAM is targeting the release of its
1H12 results in mid-Aug and is guiding for a doubling of its net income to
c.RM15m in 2Q12. Although this brings 1H12 earnings to c.RM22m, which only accounts
for c.38% of our full year estimate, the bright outlook for the stock is intact
as we expect a stronger 2H12. This will be on the back of sustainable vessel
utilisations and the recognition of the SOGT project in the later part of the
year. We have trimmed our FY12E earnings by a marginal 5% (as we assumed a
slight delay of its new vessel deliveries) but are maintaining our FY13-FY14E
forecasts. Based on an unchanged 10x targeted PER on FY13 EPS, we are keeping
our target price of RM1.14 and our OUTPERFORM call on the stock.
2012 turnaround story
is on track. Management guided for a better set of results in 2Q12, with
net profit doubling to c.RM15m (from the RM7.3m reported in 1Q12). The main
drivers of the improvement were 1) higher contribution from JVs and associated
entities and 2) better OIC segment earnings as it achieves a breakeven in 2Q12.
Recall that in 1QFY11, the segment posted an operating loss of RM1.1m.
Looking to a stronger
2H12. As mentioned above, while the upcoming 1H12 results will only make up
c.38% of our full year estimate, we still believe that 2H12 will be stronger on
the back of 1) healthy vessels utilisation rate (within the 80% utilisation
assumed for the year) for the Offshore Supply Vessel (OSV) division and 2)
execution of the remaining RM10m from the SOGT project in the Underwater
Services (US) segment where it is set to be recognised in 2H12 as SOGT project
is now 70% compled.
Order book stands at
RM570m. 70% of ALAM’s order book are from the charter contracts of the OSV
division and the remaining is from the US. We believe the JV vessels are the
main contributors of the RM400m OSV order book (60% long term and 40% spot
contracts). For the US segment, it has an order book of RM170m, which mostly
comes from its OIC division.
At least RM1.3b
tender book. another c.RM100m worth of OSV this in our FY13E forecast as we
securing it. For the US segment, worth of jobs.
New international
prospects? Besides the domestic tenders, we believe its latest JV entity in
Saudi Arabia is also seeking for new works. However, we have not imputed any
earnings contribution from this new JV entity given that it is still in the
preliminary stage. To recap, in our previous report, we mentioned that this JV
company was incorporated to undertake projects providing marine
construction-related and marine services in Saudi Arabia.
Trimming FY12E
forecasts but keeping call unchanged. We are trimming our FY12E from
RM62.1m (-5%) to RM58.7m as there are 2 vessels (12,000 bhp) are only to be
delivered in 4Q12 & 1Q13 from 2Q12 previously for both vessels. However, we
continue to maintain our FY13E-FY1E estimates as our assumptions for 80%
utilisation rate and RM400m annual replenishment jobs are maintained. ALAM is
in the midst of tendering for contracts. We have already imputed are pretty
confident in the company ALAM is bidding for at least RM1.2b
Risks. Our main
fears for the stock are 1) Lower-than-expected OSV utilisation, 2) Further
delay in the SOGT project which will skew our 2HFY12 aspirations and 3) Low
rate of project replenishment for 2013 onwards, which will put our forward
earnings at risk. In order to mitigate these risks, we believe that ALAM will
continue to be busy in contracts bidding to boost its OSV and US businesses. To
recap, ALAM won two big long contracts for total value of RM250m from the big
players in 1H12.
Reiterate Outperform.
At an unchanged target PER of 10x on FY13 EPS of 11.4sen, we are maintaining
our target price at RM1.14 with an OUTPERFORM call on ALAM. Our target PER is
slightly below its historical 6-year forward trading PER of 11.2x. We believe
this is justifiable given the above highlighted risks.
Source: Kenanga
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