MARC AFFIRMS ITS A+IS AND MARC-2ID/A+ID RATINGS ON ALAM MARITIM’S SUKUK IJARAH MTN AND MCP/MMTN FACILITIES

MARC AFFIRMS ITS A+_IS AND MARC-2_ID/A+_ID RATINGS ON ALAM MARITIM’S SUKUK IJARAH MTN AND MCP/MMTN FACILITIES

MARC has affirmed its A+_IS and MARC-2_ID/A+_ID ratings on Alam Maritim Resources Berhad’s (Alam Maritim) RM500 million Sukuk Ijarah Medium Term Notes (Sukuk Ijarah MTN) and RM100 million Murabahah Commercial Papers/Medium Term Notes (MCP/MMTN) facilities. The ratings carry a stable outlook. The affirmed ratings reflect Alam Maritim’s established and leading position in the domestic offshore support vessel (OSV) market, satisfactory order book and improved operating performance. Moderating the ratings are the group’s still high debt burden and tight liquidity position.

Alam Maritim operates one of the largest OSV fleets in Malaysia; after taking delivery of two new vessels in early 2013, the group’s fleet consists of 46 fairly young vessels (44 owned and two leased). Anchor handling tug supply (AHTS) vessels make up half of the fleet size. The OSV segment is the group’s core business, accounting for over 65% of both consolidated revenue and pre-tax profit for 2013. The segment posted better operating results in 2013 mainly attributed to stronger demand for OSVs, driven by more upstream activities by oil majors. As a result, the group's average vessel utilisation rate rose to 78% (2012: 68%) and operating profit margin for the segment improved to 16.4% (2012: 11.3%). The improved prospects for the segment has enabled Alam Maritim to register higher share of results from its associates and jointly-controlled entities (JCE) of RM52.2 million (2012: RM41.7 million). MARC observes the OSV segment’s outstanding order book of RM1,064.7 million as at end-December 2013 will provide earnings visibility over the medium term.

The group also provides subsea services and offshore, installation and commissioning (OIC) services. Although revenue from this segment declined by almost half in 2013 on fewer contracts, pre-tax profit dropped by a smaller percentage due to lower operating costs.

MARC notes that Alam Maritim’s overall operating profit margin has improved to 10.1% in 2013 (2012: 4.3%) and the group’s increased dependence on the performance of associates and JCEs. Share of results from associates and JCEs, which are mainly special purpose vehicles incorporated to hold vessels, came in at RM62.3 million, or about 75% of the group’s pre-tax profit of RM83.0 million. Alam Maritim’s cash flow from operations increased to RM169.3 million (2012: RM95.9 million) mainly due to favourable working capital movement. The group’s trade receivables and payables rose significantly due to its accounting treatment of completed works by associates and JCEs that are billed to Alam Maritim which holds the operating licence. This resulted in some trade receivables of associates and JCEs being captured in Alam Maritim’s balance sheet. However, MARC notes some deterioration in the group’s receivables ageing schedule with 21% more than 120 days past due as at end-September 2013 (year-end 2012: 5%). While any credit losses on these receivables could pressure the group’s operating profit and cash flow, moderating the collection risk is creditworthy oil majors as counterparties for the bulk of the receivables. Cash and cash equivalents stood higher at RM108.8 million as at end-December 2013 (end-December 2012: RM92.4 million).

Alam Maritim’s debt-to-equity (DE) ratio improved to 0.92x (end-December 2012: 1.06x) attributed to higher retained earnings. MARC notes that Alam Maritim’s improving reported gearing ratio is partly due to financing vessel purchases off-balance sheet. Including Alam Maritim’s share of debt under its associates and JCEs, the adjusted DE ratio would be 1.4x (end-September 2012: 1.8x). While MARC views that Alam Maritim has adequate cash generating ability, its liquidity is expected to remain tight over the next 12 – 18 months to address the repayment of maturing notes. The group has moderate financial flexibility stemming from unutilised amounts under the Sukuk Ijarah MTN programme, revolving credit and overdraft facility as well as repayment of advances from associates and JCEs. Additionally, MARC takes comfort from the group’s disciplined capital spending approach that could free up cash flow to meet its financial obligations.

The stable outlook incorporates MARC’s expectations of ongoing replenishment of Alam Maritim’s order book that provide stable-to-improving margins to sustain operating performance and the company’s efforts to manage its financial metrics in a more prudent manner.

Contacts: Se Tho Mun Yi, +603-2082 2263 / munyi@marc.com.my; Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

March 4, 2014