Alam Maritim Resources (Alam) reported on Bursa Malaysia yesterday that its wholly-owned subsidiary, Alam Maritim (M) SB, received a letter of award from Petronas Carigali for the provision of six units of marine vessels for a total sum of approximately RM576m (value includes extension of option, if exercised) for five years with a one-year extension option.
Positive but no changes to earnings estimate. The six units of marine vessels highlighted in the announcement was for six anchor handling tug and supply vessels (AHTS) – four units of the 5,000 series and two units of the 10,000 series. We understand from management that of all the vessels chartered, three are joint-venture vessels, one is a wholly-owned vessel and two are third-party chartered vessels. The contract is effective 1 Jan 2013 to 31 Dec 2017. Based on the contract values and tenures, we understand that the average charter rates secured in this contract has improved by 15%-20% overall compared to last year, which we think is positive.
Contract momentum expected to pick up. Based on our records, contract awards in the offshore support vessel (OSV) segment has surpassed RM1bn in the last two weeks, with charter rates improving from a low of USD1.0 per bhp in 2010-11 to USD1.8-USD2.2 per bhp in 2012-13. We believe that more contracts are to be awarded in the OSV business soon and the main catalyst will come from hook-up, construction and commissioning (HUCC) jobs due to be awarded for Pan Malaysia jobs along Malaysian shores.
Risk remains with its OIC and subsea business. While we are positive on Alam’s OSV business, key risk for the stock, in our view, lies with the lack of contract awards for its offshore, installation and construction (OIC) and subsea division, which will run out of jobs in April. As the losses are estimated at RM3m-RM4m per month (assuming if there are no jobs), the losses will offset the earnings growth from its OSV business.
Maintain BUY. While we have been right to highlight a BUY since the stock’s low of RM0.50 last year, we do anticipate a series of earnings downgrade from consensus if there is still no contract award for its OIC and subsea business by end-2Q13. That said, in anticipation of more OSV contracts to come, we see a short-term trading opportunity with Alam as the stock is merely trading at 8.8x FY13 EPS, which is relatively cheap compared to Perdana Petroleum (NEUTRAL FV RM1.27), which is currently trading at 12.6x FY13 EPS. We value the stock at RM1.25, pegged to 13x FY13 EPS. Maintain BUY.
Source: OSK
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