Alam Maritim Resources - Fresh charters signal turning point for OSV market

-  We maintain BUY on Alam Maritim Resources (Alam), with a higher fair value of RM1.10/share (vs. an earlier RM0.85/share), pegged to an unchanged FY12F PE of 12x – at a 25% discount to the oil & gas sector’s 16x. 

-  The higher fair value stems from a 6%-13% increase in Alam’s FY13F-FY14F earnings due to a 5% rise in our charter rate assumption from US$1.80/bhp to US$1.90/bhp, against the backdrop of a steadily improving market for offshore support vessels. 

-  Alam has announced that it has secured charters for 6 anchor handling tug supply (AHTS) vessels which are valued at RM576mil, encompassing a firm 5-year period from 1 January 2013 to 31 December 2017, plus an extension option for 1 year.

-  The six vessels include 4 AHTS with engine capacities of around 5,000 brake horse power (bhp), one of which is wholly-owned by Alam, two from the group’s JV with Tabung Haji and 1 from the JV with CIMB Private Equity. 

-  The remaining 2 AHTS will have capacities of 10,000 bhp to be sourced from Tabung Haji’s wholly-owned fleet. Including the workboat charter of RM94,800/bhp which Alam secured in October 2012 with a vessel from Perdana Petroleum, Alam has thus far secured 3 third-party vessels for chartering operations. 

-  The margins for third-party charters are typically 10%-15% but we believe that the two new contracts for the Tabung Haji vessels carry lower margins of around 5%-10%. But there are more charters expected to be secured soon as we understand that the group expects to secure another 2 more third-party vessels from a Singaporean operator to be employed for Petronas Carigali. 

-  These third party charters are expected to offset any possible losses from the group’s offshore installation and subsea divisions which currently have outstanding contracts of around RM30mil. But the group is still hopeful of turning around this segment from fresh projects this year.

-  We understand that these charter rates are 8%-11% higher than the group’s existing contracts, as the day rates have risen from US$1.75/bhp to around US$2.00/bhp. With these new contracts, Alam expects its vessel utilisation rates to rise from 76% in 2012 to 87% this year. 

-  While the stock price has outperformed the FBMKLCI by 61% over the past 6 months, valuations are still compelling at an FY13F PE of 10x – way below the oil & gas sector’s 16x. We will be meeting up with management soon for further updates on the group’s progress.  

Source: AmeSecurities