Alam Maritim - Sailing forward with turnaround intact BUY

- We maintain BUY on Alam Maritim Resources (Alam), with an unchanged fair value of RM0.85/share, pegged to an unchanged FY12F PE of 12x – at a 30% discount to the oil & gas sector’s 17x. 

- We maintain Alam’s forecasts as its 9MFY12 net profit of RM39mil came in within expectations, accounting for 70% of our FY12F earnings of RM56mil and 76% of street’s RM51mil. The group did not declare any interim dividend, as expected.

- Alam’s turnaround process appears intact as the group registered a largely flat QoQ 3QFY12 net profit of RM16mil as higher vessel utilisation rates mostly offset the weaker lumpy contributions from the underwater/offshore installation construction (OIC) division. 

- Improved utilisation rates for vessels on short-term charters boosted offshore support vessel (OSV) revenue by 61% QoQ and EBIT margin by 5ppts to 28% for this division. Recall that 2QFY12 experienced the lapsing of 5 vessels on short-term charter contracts. But overall vessel utilisation was still maintained at around 80% because the vessels under the joint-ventures with CIMB and Tabung Haji were fully chartered out during the quarter. 

- The group’s earnings recovery is more clearly seen in the 9MFY12 net profit rebound of 2.9x YoY from improved vessel utilisation rates for the company as well as Alam’s joint-ventures with CIMB Private Equity and Tabung Haji.

- The losses for the OIC were halved QoQ to RM1mil despite a 49% contraction in revenue due to the progress of the group’s work for Sabah Oil & Gas terminal (SOGT) and Shell Sarawak’s E8 & F13K offshore modules.

- Management remains optimistic about a turnaround in the OIC division (which registered a RM5mil loss in 9MFY12), with the group still eyeing additional RM200mil fresh contracts in this segment. Recall that Alam had secured its maiden major OIC contract with Samsung worth US$18mil for SOGT last year. 

- 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 8x – at the lower end of its PP 12247/06/2013 (032380) historical PE band.   

Source: AmeSecurities