Alam Maritim Resources - Two More Charter Contracts

News    Last week, Alam Maritim Resources Bhd (“ALAM”) announced that it had been awarded a contract from Petronas Carigali (Peninsular division) for the provision of two offshore support vessels (OSVs) to support the Client’s Drilling Campaign.

 The contract is for a primary period of seven months with an extension option of another three months and is valued at approximately RM30.2m (inclusive of the optional period).

Comments   Management has guided that the two OSVs are a 10k and 5k bhp Anchor Handling Tug Supply (AHTS) vessels respectively and are on third-party charters. 

 Based on the contact value, the daily charter rate (DCR) of the contract comes up to c.USD2.17/bhp for both the vessels. We suspect the 5k bhp vessel could be fetching around USD1.9-2/bhp and the 10k bhp vessel at around USD2.10-2.20/bhp. These rates are pretty decent and we suspect are due to the shortterm tenure of the charter. Given that they are thirdparty charters, we believe their net margins would be around 10-15% and as such, this contract should yield a net profit of around RM3-4m. 

 While we are positive on the extension of this contract as it showed Alam’s ability to continue winning contracts, we had already incorporated in around RM15m earnings of third-party charters for CY13, which would accommodate this win. Hence, it is seen as having a neutral impact to our current forecasts.

Outlook   Alam is expected to release its 4QFY12 by end-Feb 13. We believe its results could be sequentially lower (versus 3QFY12) due to the monsoon season. 

 We believe the OSV market is finally turning around and expect it to remain vibrant (similar to the heightened activities seen in 2007-2008). Further OSV awards are expected from the other PSC players such as Murphy Oil.

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

Forecast   Maintaining FY12-14E earnings. 

Rating  Maintain OUTPERFORM

Valuation    Our unchanged TP of RM1.09 is based on a targeted PER of 12.0x on its FY13 EPS of 9.2 sen. Our ascribed PER is justified given that it is still at a discount to ALAM’s 2-year forward average PER of 12.6x and its peak of 19.0x seen in 2007-2008. 

Risks   1) A sudden slowdown in OSV contracts going forward

and 2) lower than expected contract wins for ALAM’s underwater division

Source: Kenanga