Alam Maritim - Dampened by JV write-off, offshore construction delay BUY

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD

Research House: AMMB

Price Call: BUY

Target Price: 1.00

We reiterate our BUY rating on Alam Maritim Resources, withan unchanged fair value of RM1.00/share, pegged to an FY12F PE of 12x ' at a25% discount to the oil & gas sector's 16x. 

Alam's FY11 result was 54% below our earlier FY11F net profitof RM28mil and 64% of street's RM36mil. Thisstemmed largely from:

1) a RM15mil expense for capitalised interest on two 12,000 brakehorse power vessels, currently being built in China, which will be injectedinto the 50:50 joint venture (JV) with Tabung Haji (TH). The sale and leasebackagreement was signed in 4QFY11, while the vessels will be completed by the endof 2012.

2)  a RM5miladditional interest charge for the 50:50 JV for the Alam-Swiber derrick laybarge as the commencement of the RM230mil offshore installation construction(OIC) contracts in East Malaysia has been delayed from September last year toMarch-April this year.

Alam registered a 4QFY11 net loss of RM1mil vs. a net profitof RM13mil in 3QFY11, largely due to the Alam-TH JV one-off capitalisedinterest expense, delay in OIC construction work and 27% QoQ seasonal drop inmarine charter revenue. Although FY11 net profit came in way short ofexpectations, we expect a significant recovery in 1QFY12 as the group's vesselutilisation has remained firm at over 80%. Hence, we maintain FY12F-FY13F netprofits, based on vessel utilisation rates of 80%-90% and EBIT margins of 55%.We introduce FY14F net profit with  a growthof 7% based on a 5ppt- improvement in vessel utilisation rate.

We expect the turnaround in the OIC division to be  a strong re-rating catalyst as this divisionhad been a significant drag to earnings since 4QFY10. This recovery should besustainable as Alam is also aggressively bidding for more OIC jobs and could beawarded another sizeable contract early next year. Recall that Alam secured itsmaiden major OIC contract with Samsung worth US$18mil for Sabah Oil & GasTerminal (SOGT).

We also expect Alam to be awarded fresh charters for its idlingand spot-chartered vessels as utilisation in the sector has tightened. We notethat day rates have been slowly rising on tightening global vesselutilisation. 

As such, we maintain our view that the company'searnings recovery is intact with undemanding valuations of FY12F PE of 9x ' atthe lower end of its historical PE band. This is underpinned by improvingvessel utilisation rates with its recent charters, coupled with a likely turnaroundin its offshore construction division.


Source: AmeSecurities