Alam Maritim Resources - Strong rebound from JVs Buy

- We maintain BUY on Alam Maritim Resources, with an unchanged 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. 

- We maintain FY12F-FY14F net profits, as the 1HFY12 results were within expectations, accounting for 42% of our FY12F net profit of RM56mil and 43% of street estimate’s RM55mil. 

- We expect a stronger 2HFY12 as contributions from Alam’s joint-ventures with CIMB Private Equity and Tabung Haji have registered a strong rebound, as guided in our past reports. Additionally, losses from the offshore installation & construction (OIC) and underwater services have begun to contract on higher progress works.

- Alam registered a 2.2x QoQ rebound in 2QFY12 net profit to RM16mil, largely due higher vessel utilisation rates, which drove the recovery in earnings from the Alam-CIMB Private Equity and Alam-TH joint ventures, which have now fully chartered out their vessels. 

- While revenue from OIC/underwater division surged from only RM5mil in 1QFY12 to RM133mil in 2QFY12 from recognition of works for the Sabah Oil & Gas terminal (SOGT) pipelines and Sarawak Shell offshore facilities, this segment still suffered a slight loss of RM3mil, likely due to start-up operating costs. 

- We understand that as fleet vessel utilisation rate has remained stable QoQ at 78%, Alam’s strong 2HFY12 earnings are likewise expected to be sustainable over the next two quarters. 

- Management remains optimistic about a turnaround in the OIC division, with the group eyeing additional RM200mil fresh contracts in this segment. Recall that Alam has secured its maiden major OIC contract with Samsung worth US$18mil for SOGT. We also expect Alam to be awarded fresh charters for its idling and spot-chartered vessels as global utilisation continues to improve. 

- While we expect offshore support vessels’ day rates to remain relatively flat for the rest of the year, prospects for a pick-up in overseas charter rates next year are improving with the rollout of major projects in Brazil, Africa and Australia.

- As such, we maintain our view that the company’s earnings recovery is intact, with an undemanding valuation of FY13F PE of 6x – at the lower end of its historical PE band.   

Source: AmeSecurities