Alam Maritim Resources - Higher workboat charter rates for extension BUY

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

- Alam has secured the extension of two work boat charters worth RM71mil for another year to support Petronas Carigali’s painting activities off Peninsular Malaysia. The contracts start from 25 May 2013 to 24 May 2014 and 3 July 2013 to 2 July 2014 respectively.

- This extension is part of the letter of award from Petronas Carigali on 30 May last year to provide 4 work boats. But the actual contract required only two of the vessels for a year plus another annual extension option.

- The earlier contract value of RM122mil indicates that the average charter rate amounted to RM30mil annually. But the fresh extension charter rate of RM35mil translates into a compelling increase of 16%.

- Alam currently has 3 vessels chartered from third parties, including 2 anchor handling tug vessels from Tabung Haji and a workboat from Perdana Petroleum. 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. Hence, the group may end up with 5 third-party vessels servicing its charters from Petronas Carigali this year.

- 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.

- Recall that Alam has secured RM576mil replacement charters for 6 anchor-handling tug supply (AHTS) vessels earlier this year, which indicate that charter rates have risen from US$1.75/bhp in 2012 to above US$2.00/bhp. Hence, we maintain our conviction that charter rates have reached an inflection point with an upward trend that is fast gaining traction. 

- While the stock price has outperformed the FBMKLCI by 64% 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