Alam Maritim expected to buy 51% stake in diving support vessel

by **Cals** Tue 06 May 2014, 17:20

Business & Markets 2014

Written by AmResearch

Tuesday, 06 May 2014 10:27

Alam Maritim Resources Bhd
(May 5, RM1.53)
Maintain buy with target price of RM2.05: We maintain buy on Alam Maritim with an unchanged fair value of RM2.05 per share, pegged to a financial year 2015 ending Dec 31 (FY15F) price-earnings ratio (PER) of 14 times — an 18% discount to the oil and gas sector’s 17 times.

Alam Maritim’s 50%-owned Alam Swiber Offshore (M) Sdn Bhd recently entered into an agreement with Technip Geoproduction (M) Sdn Bhd and Malaysia Marine and Heavy Engineering Sdn Bhd to undertake a contract potentially worth up to RM248 million to provide engineering, procurement, construction, installation and commissioning works.

This contract mostly involves transport and installation (T&I) of facilities and equipment for the Tapis enhanced oil recovery works off Terengganu.

We understand that Alam Maritim expects to recognise 20% of the contract value this year and the balance in FY15. Based on a pre-tax margin of 15%, we estimate that this project could generate earnings of RM3 million in FY14F and RM11 million in FY15F.

But we maintain our forecasts, which have already assumed revenue of RM150 million to RM250 million for FY14F and FY15F for the T&I and underwater services divisions.

But this contract augurs well for Alam Maritim’s prospect which is underpinned by an expected ramp-up in new orders for its T&I and underwater divisions, which registered a loss of RM9 million in the fourth quarter ended Dec 31 (4QFY13) due to low seasonal orders.

Separately, we remain positive on Alam Maritim’s expected acquisition of a 51% stake in a US$80 million (RM260.8 million) diving support vessel (DSS), which could garner a daily charter rate of US$80,000 to US$120,000. Expected to secure a utilisation rate of 75%, the DSS will be employed to support the group’s underwater inspection, repair and maintenance (IRM) works.

The group hopes to secure a significant portion of Malaysia’s prospective IRM jobs, potentially worth RM1.8 billion to RM2 billion over three years. Hence, the DSS is likely to be long term earnings per share-accretive and underpins a strong likelihood of upgrades to consensus earnings over the next one to two years. — AmResearch, May 5

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This article first appeared in The Edge Financial Daily, on May 6, 2014.