Alam Maritim Resources Bhd
(June 12, 58.5 sen)
Maintain underperform with unchanged target price of 61 sen: Alam Maritim was awarded a subcontract by Petronas Floating LNG (L) Ltd (PFLL) for the engineering, procurement, installation and related activities for the floating liquefied natural gas (FLNG) offshore works — mooring system installation (Package No 1). The contract is valued at RM49 million which spans from May 20 to Sept 15 this year.

This is definitely positive for the group as it potentially signifies the start of its underperforming underwater division gaining traction with more contracts of similar nature to be secured. For financial year 2015, we have assumed RM100 million in revenue and RM15 million in earnings before interest and tax (Ebit) for the underwater division.

It is the group’s intention to secure more underwater projects this year to improve the division’s profitability. We reckon the group will utilise its in-house accommodation work barge for the execution of the contract. Assuming a 15% operating margin, the contract is expected to contribute about RM7.2 million in Ebit to the group this year. This will provide a further buffer for the group’s overall earnings which may potentially face downside headwinds from its uncertain offshore support vessel (OSV) division.

The OSV segment is expected to be challenging this year given the current adverse trend in crude oil prices. Vessel utilisation is expected to be under pressure this year as oil companies slow down their activities in general. On top of that, existing charter contracts by local OSV players are not expected to be spared from the renegotiation of rates by Petroliam Nasional Bhd (Petronas). We believe the impact of rate cut should be more severe on vessels under high daily charter rates (above US$2.20 or RM.... per brake horse power or bhp). The potential cut in rates could be in the region of 5% to 10% as opposed to the 20% to 30% cut by Petronas.

We maintain our forecasts for now as they are deemed in line with our expectations. — Kenanga Research, June 12

This article first appeared in The Edge Financial Daily, on June 15, 2015.