Alam Maritim Resources - Starting The Year With The Big Bang

News    Yesterday, Alam Maritim Resources Bhd (“ALAM”) announced that it had been awarded a long term 6-unit OSV contract from Petronas Carigali (guided to be two 10,000 bhp and four 5,000 bhp AHTSs). 

 Valued at RM576.0m, it is for the firm period of 5 years with a further 1-year optional extension. The contract came into effect from 1^st  Jan 2013.

Comments   Positive on the contract wins as it is the first long term charter awarded to ALAM in a long while. It is also comforting that ALAM is not left out of the Offshore Support Vessel (OSVs) contract roll-out trend that we have seen thus far in 2013. Note that peers like Perdana Petroleum (Not Rated) and SILK Holdings (Not Rated) were awarded contracts last week. 

 Amongst the three 5,000 bhp vessels, two are JVs with Lembaga Tabung Haji (LTH) and another with CIMBPE. The remaining one is wholly-owned. 

 The two 10,000 bhp vessels are wholly-owned by LTH and will be considered as third party charters by ALAM. 

 Overall, we estimate average DCR for this contract is around USD2.20/bhp (assuming the inclusion of the 1 year extension); a considerably comfortable range given that DCRs had at one point dipped to an average of USD1.40-1.60/bhp. 

 The contract is forecasted to yield a net profit of RM84.6m based on a margin of 15%. Despite so, we are keeping our earnings estimates unchanged as we have already assumed higher utilisation rates (80% and 83%) for the OSV segment in 2013-14. 

Outlook   Further OSV awards are expected from other PSC players such as Murphy Oil. The market talk is that there will also be more awards from PCSB as well.

 Catalysts for the stock will be higher contract flows for its Underwater Services division, which we are projecting only a single-digit operating profit in 2013.

Forecast   Maintaining FY12-14E earnings. 

Rating  MAINTAIN OUTPERFORM

Valuation    Given the OSV market is finally turning around and expected to remain vibrant (similar to the heightened activity seen in 2007-2008), we believe that the sector poised for a re-rating. As such, we are lifting our targeted FY13 PER to 12x (from 10x previously). We believe this is justified given the ascribed PER is still at a discount to ALAMs 2-year forward average of 12.6x and peak of 19x PER seen in 2007-2008. 

 Thus, we are lifting our TP to RM1.09 (formerly RM0.92), based unchanged FY13 EPS of 9.2sen.  

Risks   1) Sudden slowdown in OSV contracts going ahead; and 2) Lower-than-expected contract wins for ALAM’s underwater division.

Source: Kenanga