Alam Maritim Resources Bhd
(Nov 4, RM1.07)
Maintain “neutral” with lower target price (TP) of RM1.12: Alam Maritim has received a US$9.56 million (RM31.7 million) letter of award (LoA) to demobilise a floating storage facility. Although this LoA and a possible short-term contract for 1MAS-300 pipelay barge are positive surprises to us, we believe they are insufficient to lift the stock’s sentiment amid the current cautious outlook.

Alam Maritim is undertaking a short-term contract to demobilise a floating storage facility for a local oil and gas (O&G) services firm. The company commenced work on Oct 6 and expects to complete all works by Nov 15.

Although no further details are given, we believe this contract could share some similar work scope with a decommissioning contract carried out by IEV (IEV SP, NR) for M3nergy’s Perintis floating, production, offloading and storage located off Terengganu. The US$15million contract was carried out from January to March 2014.

IEV carried out the project’s engineering capabilities with vessels from a partner, Emas-AMC Pte Ltd. Based on this example, we expect Alam Maritim to perform the engineering phase of the work via a 50% joint venture with subsidiary Alam Swiber Offshore Sdn Bhd.

Similarly, we understand that it may likely rely on third-party vessels rather than its own for the job. Although the profit contribution falls under the subsidiary, we expect about 10% bottom line margins to the group given that demobilisation is among Alam Swiber’s offshore, installation and construction works capabilities.

We raise our financial year of 2014 (FY14) forecast earnings per share by 5% to account for the two positive surprises as: (i) we did not factor in the demobilisation job earlier (we assumed Alam Swiber would remain idle for the rest of 2014); and (ii) we understand that its 1MAS-300 pipelay barge (assumed idle previously) is likely operating on a short-term accommodation contract.

We keep our “neutral” call but lower our TP to RM1.12 as we trim our price-earnings ratio assumption to 12 times (from 14 times) given the sector-wide derating amid a more cautious O&G sector outlook and lack of contract news flow.

Based on Alam Maritim’s 2013 annual report, 31 out of its 44 vessels are on long-term charters, implying that 30% of its current fleet are susceptible to uncertainties in garnering favourable charter rates upon contract renewal.

Further risks include partnership risk, execution risk and weaker offshore support vessel margins.— RHB Research, Nov 4

This article first appeared in The Edge Financial Daily, on November 5, 2014.