Wednesday, 6 March 2013

Alam Maritim Resources - Secures two more small contracts

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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