Alam Maritim Resources Bhd
(March 9, 30 sen)
Maintain underperform with a target price (TP) of 23 sen: Alam Maritim Resources Bhd made its first contract award announcement in 2017 with a lump sum contract worth RM34 million for the demobilisation work of floating production, storage and offloading (FPSO) Perisai Kamelia.
As it is deemed within our expectations with vessel utilisation of 55% for FY17, we made no changes to our forecasts. Reiterate “underperform” with a TP of 23 sen pegged to 0.3 times 2017 price-to-book value (P/BV) due to no improvement in the oversupplied offshore support vessel (OSV) market leading to depressed rates.
On Wednesday, Alam Maritim announced that its wholly-owned subsidiary, Alam Maritim (M) Sdn Bhd, has been awarded a contract for the provision of offshore construction subcontractor for demobilisation work of FPSO Perisai Kamelia.
The contract value is RM34 million with an additional scope for water treatment at a provisional sum of RM1 million.
The contract award is positive to Alam Maritim, marking the first contract award announcement in 2017. However, this is not a surprise to us and deemed within our expectations. We anticipate the contract to fetch a 10% earnings before interest and tax (Ebit) margin, lower than its historical 15% Ebit margin during better times.
Assuming an Ebit margin of 10%, we estimate the contract will contribute RM3.4 million Ebit in FY17.
The OSV segment is expected to stay challenging in 2017 despite stabilisation of crude prices given that the market is still flooded with idle young vessels. As such, we do not foresee a strong recovery in charter rates in the near term.
We reckon margins for the underwater services segment are under pressure and will be hit by low asset utilisation in its pipe-lay barge and diving support vessel as the contracts secured are mostly short-term, thereby creating time gaps in between jobs.
Alam Maritim is still actively tendering for multiple short-term jobs and should the company exceed our order book replenishment assumption, it would serve as a rerating catalyst for the stock. No changes to our current forecasts as we have factored in RM150 million contract win with an average utilisation of 55%.
With that, we still believe Alam Maritim could register losses of RM27.3 million which will subsequently narrow to losses of RM14.8 million in FY18, assuming 11% growth in revenue backed by better utilisation at 60%.
Risks to our call include better-than-expected OSV and underwater services division, higer-than-expected margins on vessels, and faster-than-expected recovery in the OSV market. — Kenanga Research, March 9