News Yesterday, Alam Maritim Resources Bhd (“ALAM”)
announced that it had been awarded two letters of award for underwater services
for a local oil and gas company.
The total value of
the contracts is estimated at RM24.9m while the tenures of the contracts are
for a maximum period of 21 days (Contract 1) and 150 days (Contract 2). The
contracts are not renewable.
Comments This is ALAM’s sixth contract announcement in
2013, bringing its total wins to RM754.2m for the YTD.
While we are positive on the contract wins, given it means
job replenishment for the underwater division, which is considered a key risk
division for ALAM in 2013, we believe the contracts sum above is marginal to
ALAM’s order book of RM1.1b and falls within our revenue estimate of RM79.2m
for the underwater services division for 2013.
At a 7% operating
margin, the above project could yield RM1.7m to ALAM’s EBIT.
Outlook We believe the OSV market is finally turning
around and expect it to remain vibrant (similar to the heightened activity seen
in 2007-2008) and as such, the stock is poised for a re-rating.
A buoyant future
outlook is expected with further OSV awards expected from the other PSC players
such as Murphy Oil. (The market talk is that there will also be more awards
from PCSB as well.)
Catalysts for ALAM
will be higher contract flows for its underwater services division (OIC and
Subsea), which we have projected to make only a single-digit operating profit
in 2013.
Forecast Maintaining our FY13-14 earnings estimates.
However, we are
looking to fine-tune our forecasts pending a meeting with management.
Rating Maintain OUTPERFORM
Valuation At an unchanged PER of 12x, we are keeping our
OUTPERFORM call with a TP of RM1.09 on ALAM.
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) Lower than expected OSV utilisation and 2)
a continuation of its sluggish underwater services division works.
Source: Kenanga
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