AmWatch - Alam Maritim : New diving support ship could easily offset EPS dilution BUY, 24 Apr 2014

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Alam Maritim : New diving support ship could easily offset EPS dilution  BUY

We maintain BUY on Alam Maritim Resources (Alam) with an unchanged fair value of RM2.05/share, pegged to an FY15F PE of 14x – at an 18% discount to the oil & gas sector’s 17x. Alam has entered into a subscription agreement to issue 123mil new shares (which represent 15% of the group’s share base) at RM1.35/share to Associated Land S/B (AL) and Caprice Capital Intl Ltd. The shares are issued at an 18% discount to the last traded price.AL is an indirect subsidiary of Hong Leong Company (M) Bhd while the major shareholder of Caprice is Paul Poh Yang Hong, a former managing director of Hong Leong Management Co.

The RM166mil placement proceeds will be used to pare down its debts by RM95mil and to partly finance the acquisition of a US$80mil (RM260mil) diving support ship (DSS) from a Singapore-based vessel operator. Hence, the group’s net gearing of 0.3x as at end-FY14F will be largely unchanged. The group plans to take a 51% equity stake in the vessel with an equity-to-debt ratio of 30:70.

We understand that the DSS’ daily charter rate is US$80k-US$120k and the group expects to garner an utilisation rate of 75% based on the activities of underwater inspection, repair and maintenance (IRM) works. Assuming a daily charter rate of US$80k and a conservative utilisation rate of 25%, we estimate that the new vessel will easily offset the FY15F-FY16F EPS dilution from the new shares. But for FY14F, we expect a 9% EPS dilution because any revenue recognition from the vessel will only materialise in 4QFY14.

With this DSS, the group hopes to secure a significant portion of Malaysia’s prospective IRM jobs, potentially worth RM1.8bil-RM2bil over 3 years. Valuations are compelling at an FY15F PE of 11x – 0.6x of the oil & gas sector’s 18x.

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Others :

CB Industrial Product : Positioned to receive more contracts        BUY

Petronas Gas : Slight enhancement from Pengerang pipeline      HOLD

QUICK TAKE

Kossan Rubber Industries : Final dividend of 3.5sen/share declared         BUY

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