Alam Maritim - Tide shifts following offshore installation jobs BUY

- We maintain BUY on Alam Maritim Resources (Alam), with an unchanged fair value of RM1.10/share, pegged to an unchanged FY13F PE of 12x – at a 30% discount to the oil & gas sector’s 16x.

- We met up with management recently and remain convinced that Alam’s brightening prospects are backed by strong fundamentals. Our FY13F-FY15F earnings are maintained, but with a potential for upward revisions if Alam secures a block in the upcoming Pan-Malaysian transport and installation umbrella contract.

- Alam is pitching to be one of the concessionaires for the Pan Malaysian umbrella transport and installation contract, which could be worth RM3bil-RM5bil annually and may be tendered for renewal later this year. Currently, Alam is a sub-contractor for SapuraKencana Petroleum. If successful, we estimate that Alam’s FY14F earnings could be raised by 25%, based on a net margin of 10%.

- The group also expects its underwater division to turn around significantly from a loss of RM8mil in FY12 on the back of almost RM2bil worth of contracts, previously awarded to Offshoreworks Group, up for grabs. We understand that a RM200mil underwater contract is likely to be secured soon.

- For the group’s bread & butter offshore support vessels (OSV) division, new charters are expected to be announced in tandem with 34 vessels required by Petronas Carigali’s exploration and production division this year.

- While the vessels in the group’s JVs with CIMB Private Equity, Tabung Haji and Bank Pembangunan are expected to continue to generate the bulk of Alam’s FY13F earnings, its wholly-owned OSVs, which barely broke even with a utilisation rate of 60% last year, are poised to improve when its 8 vessels currently on spot charters secure longterm contracts in 2H2013.

- Additionally, the Pan-Malaysian umbrella hook-up and commissioning contract, worth RM8bil-RM10bil and expected to be awarded by 1H2013, will further fuel the need for additional vessels.

- We maintain our conviction that OSV charter rates have reached an inflection point with an upward trend that is fast gaining traction. The fresh Petronas Carigali charters secured earlier this year by Alam reveal that charter rates have risen from US$1.75/bhp in 2012 to US$2.20/bhp currently.

- Valuations are still compelling, with the stock now trading at an FY13F PE of 10x – way below the oil & gas sector’s 17x.

Source: AmeSecurities