Alam Maritim
Dated June 2012
Alam Maritim Resources Bhd (AMRB), which returned to the black last year, is confident that it could do even better in the year ending December 31 2012.
In 2011, AMRB registered a net profit of RM13.2 million from a net loss of almost RM13 million in the year before. For the first quarter ended March 31 2012, it recorded a pre-tax profit of RM7.54 million against a pre-tax loss of RM6.728 million in the same quarter last year.
Revenue from the Offshore Support Vessels (OSV) services contributed to the improvement in the group's earnings.
AMRB currently has a total order book for its OSV services of about RM700 million where each of its contract has an average tenure of between two and thre years.
The company will continue to bid for new lucrative projects locally and globally, especially in the Organisation of Islamic Conference countries.
AMRB has been invited to submit bids for overseas jobs through its recent joint venture with Globe Marine Services Co, a private company based in Saudi Arabia. which will focus on services to oil majors within Middle Eastern and African regions.
AMRB was recently awarded a RM121.54 million contract from Petronas Carigali Sdn Bhd to provide four work boats to support the latter's Peninsular Malaysia operations' painting activities.
In Oct 2012 it has secured a RM69.22mil contract to provide a workboat to a local oil and gas company.
Its unit Alam Maritim (M) Sdn Bhd had recently accepted the contract which was for a primary period of one year with an extension option for another year.
The contract is for a value of up to RM69.22mil (if the client engages the workboat for the full duration, inclusive of the optional period).
The risks associated with the contract were mainly operational risks such as accidents and unexpected breakdown of vessels.
To mitigate the risks, it had developed a programme maintenance schedule according to the International Safety Management standards to maintain the performance and seaworthiness of all its vessels.
In June 2012 Alam Maritim has inked a MOU with Pacific Crest Pte Ltd to acquire a 402 Men/100 M accommodation work barge for rm95 million as part of its fleet expansion plan, The acquisition was in line with the fleet expansion plan of the Group’s core business in providing marine support services to the offshore oil and gas facilities. The acquisition would be financed via internally generated funds.
In Jan 2012 Alam Maritim (M) Sdn Bhd has won an engineering contract worth RM115 million from Samsung Engineering (Malaysia) Sdn Bhd in the Sabah Oil and Gas Terminal Project in Kimanis. The contract, expected to commence immediately, comprises transportation, installation and pre-commissioning of two pipelines, two single-point moorings, two pipelines end manifolds for the massive project. The expected delivery date is by the third quarter of the financial year ending Dec 31, 2012.
Alam Maritim is a wholly-owned subsidiary of Alam Maritim Resources. The contract was not renewable. The contract is expected to positively contribute to the group's earnings and net assets for the financial year ending Dec 31 2012.
Its wholly owned subsidiary had received an award from Sarawak Shell Bhd for offshore transport and installation contracted estimated at rm29.8 million.
In 4QFY2010, it posted red with a net loss of rm46.5 million, dragged down by Vastalux and remained in the red in 1QFY2011 with a net loss of rm6.8 million.
In 2QFY2011, the company managed to chalk up a net profit of rm7 million, making improvement in 3QFY2011 with a net profit of rm13.4 million on the back of better vessel utilization.
About 50% if Alam’s vessels are long term charters averaging about a year while the remaining are on spot charter. Hence its utilization rate fluctuates monthly, on average it is still hovering at 60% to 80%. In the meantime, some of Alam’s peers are still struggling with low utilization rates below 50% even on Dec2011.
In March 2012 MARC has revised the outlook on Alam Maritim’s Islamic sukuk and Islamic debt ratings to negative, from stable previously.
The revised outlook reflects the pressure on Alam Maritim’s credit profile arising from significantly weaker earnings and cash flow generation in 2010 and 2011.
Alam Maritim’s earnings had been pressured by lower vessel utilisation and charter rates, reflecting strong competition and a difficult operating environment.
Alam Maritim is the third largest domestic offshore support vessel operator by tonnage, and owns 41 Malaysian-flagged vessels.
MARC also affirmed its ratings at AA- and MARC-1/AA-on Alam Maritim’s RM500mil sukuk Ijarah medium term notes and RM100mil Murabahah commercial papers/medium term notes programmes respectively.
The rating action affects RM475mil of outstanding notes issued under the programmes.
The rating agency believes that Alam Maritim’s financial measures would remain weak for the current ratings in the next 12 to 18 months.
Redtone
Only eight out of the 60 companies that collected tender documents for the digital terrestrial television (DTTB) infrastructure build-up submitted their bids at the close of the tender in late July 2012. The eight are said to be Astro Productions, Celcom Axiata Bhd, Sapura Group, iMedia, Packet One Networks (P1), REDtone Interna-tional Bhd, DTV, and Puncak Semangat Sdn Bhd.
Telekom Malaysia Bhd (TM) and YTL Communications Sdn Bhd did not submit bids even though they had collected the documents and the market had speculated that they would be the frontrunners for the DTTB project. It is not known why TM and YTL Communications were absent but the winner of the DTTB project will have to work with The tender bid is for the building of a common integrated infrastructure for all the free-to-air TV stations to migrate to provide digital TV nationwide. The winner will have to design, build, own and operate the infrastructure for DTT-fixed TV reception services, comprising the transmission, network facilities and the Digital Multimedia Broadcasting Hub.
The tender opened in late April and in May 2012 the industry regulator, Malaysian Communications & Multimedia Commission (MCMC), conducted a briefing on the DTTB, and the closing of the tender was on July 24 2012. The regulator will take more than a month (Sept 2012 – Oct 2012) to evaluate the bids before the winner is announced.
The whole project is likely to cost over RM1bil, though earlier estimates were that it could cost RM2bil. The company that wins will also have to supply set top boxes which could cost as much as RM300mil. With digital TV, users will need a set top box to unscramble the signals for viewing. However, it is clearly stipulated in the tender documents that the parties will have to fund the entire project and the winner will not be able to charge more for transmission services as the free-to-air players will pay existing rates.
Its Prospects … dated July 2012
Developments at Redtone may indicate that its prospects are looking brighter. Redtone signed a network sharing and alliance agreement with Maxis Bhd’s wholly owned subsidiary Maxis Broadband Sdn Bhd. This partnership will allow both companies to fast track their rollout of LTE/4G, which is slated for commercial launch in 2013.
The company deputy chairman and non independent non executive director Datuk Wira Syed Ali Abbas has been acquiring RedTone shares. He purchased 1.5 million shares on the open market in early July 2012. His total shareholding in Redtone now (July 2012) stands at 27.7%. When a major shareholder continues to buy into the company, it is usually seen as a positive development as it denotes an increase in commitment. No indication has been given as to whether he wants to take the company private eventually.
Datuk WIra Syed Ali is the head of the Cheras UMNO division.
Redtone has been loss making for the past four years as the company shifts focus from voice to data. However, for third quarter, the company has already broken even, reporting a net profit of rm427000.
And now (July 2012) the partnership with MAXIS is expected to help improve REdtone’s bottom line. Each party will pay to use the other’s network and given that Maxis is currently the telco market leader, it allows Redtone to gain from the telco’s large subscriber base.
At the moment, the agreement between Redtone and Maxis is for five years. It will allow Redtone to see capex savings of rm390 million which it would otherwise incurred over the next six years. For Redtone to comply with the 50% rollout requirement, its capex would have been rm390 million. However this has been mostly replaced by riding and leasing the necessary capacity from MAXIS.
Taking the capex off its shoulders will enable Redtone to concentrate on packaging its products to compete in a market that is becoming increasingly competitive with thinning margins for voice.
On Maxis’s sides, this collaboration will allow the telco to increase its capacity, which it needs in order to deal with the boom in data.
The tie-up could work as a step forward in mitigating rollout risks and ensuring optimum subscriber experience when the LTE is commercialized in 2013.
Redtone stands to benefit from significant capital expenditure savings as it no longer needs to invest in LTE networks, thereby allowing the company to fast-track its rollout.
The active 3G radio access network (RAN) sharing pact with U Mobile also allows Maxis to collaborate with the former on LTE, effectively boosting the overall utilisation of its networks and wholesale revenue in the long term.
The M-REITs Industy
Even M-REITs“risk-free-rate” reference point or the 10-year Malaysian government securities (MGS) yield has been trending lower to the current (Oct 2012) 3.5%. Most M-REITs are trading at historically low gross yields (Oct 2012), not to mention record low spreads to the 10-year MGS yields.
M-REITs have undergone severe dividend yield compressions throughout the year (2012) as investors seek safe havens in defensive stocks, with most of them trading at historically low gross yields since 2009 or post-global financial crisis. However, M-REITs should command some premiums to the 10-year MGS or what consider a“risk-free-rate” asset as M-REITs, although defensive, are not completely risk-free. There is limited room for further yield compressions.
By analyzing the historical premiums of M-REIT gross yields versus the 10-year MGS since 2009 indicates that the thinnest M-REIT gross yield premium to the 10-year MGS yield is now (Oct 2012) + 0.9% to +1% which is derived from Pavilion REIT and IGB REIT's estimated FY12 gross dividend yield of 4.4% and 4.5%, respectively.
This forms the basis of the valuations for M-REITs (CMMT, Sunway REIT, Axis REIT) because both Pavilion REIT and IGB REIT M-REITs are commanding the lowest gross yield spreads because they are the top two largest M-REIT by market capitalisation, own “landmark retail”assets in prime locations and have the highest retail asset exposure.
KLCC Property potential REIT-ing of its assets deserves better given their crme de la crme assets, which are located within KLCC precinct or the most prime address in town.
To recap, M-REITs have done well in recent months prior to Oct 2012, given the prevailing uncertain global economic environment, finding favor among the more risk averse investors. While REITs are not risk free, they did emerge comparatively unscathed from the last global financial crisis. Their yields have seen a fair amount of compression.
Among all the locally listed REITs, those operating in the retail segment are currently (Oct 2012) offering the lowest yields since this sector is widely seen as the most defensive on the back of expectations that consumer spending will stay resilient amid the external downturn.
Looking ahead (Oct 2012 & Beyond), many investors will stay with REITs even after taking account falling yields.
With slowing economies across all regions, there is no clear driver for growth, yet. The environment of extended low interest rates will in turn keep pushing investors to seek out higher yielding alternatives to government bonds, and at the same time take on higher risks.
Low borrowing cots also bode well for REIT incomes when loans are refinanced. Most of the locally listed funds have gearing levels ranging from 20% to 50%, the max guidelines under the existing rules.
To be sure, this downtrend in rates will reverse once the global economy regains traction. However this may not happen for some time yet. The US Fed lengthened its pledge to keep short term rates near zero to mid 2015 at least.
Furthermore, for those who fear all the liquidity will eventually lead to a flare up in inflation. REIT’s underlying properties could offer investors a hedge against rising prices.
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