AmWatch - Alam Maritim : Fresh RM248mil T&I job for Tapis project BUY, 5 May 2014

STOCK FOCUS OF THE DAY

Alam Maritim : Fresh RM248mil T&I job for Tapis project               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 – an 18% discount to the oil & gas sector’s 17x. Alam’s 50%-owned Alam Swiber Offshore (M) Sdn Bhd has recently entered into an agreement with Technip and MMHE to undertake a contract potentially worth up to RM248mil (including optional works). This contract, expected to commence immediately, mostly involves the transport and installation (T&I) of facilities and equipment for the Tapis enhanced oil recovery works off Terengganu.

We understand that Alam expects 20% of the contract value to be recognised this year and the balance in FY15. Based on a pretax margin of 15%, we estimate that this project could generate earnings of RM3mil in FY14F and RM11mil in FY15F.

But we maintain our forecasts, which have already assumed revenue of RM150mil-RM250mil for FY14F-FY15F for the T&I and underwater services divisions. This contract augurs well for Alam’s prospect which is underpinned by an expected ramp up in new orders for the T&I and underwater divisions, which registered a loss of RM9mil in 4QFY13 due to low seasonal orders. Separately, we remain positive on Alam’s expected acquisition of a 51% stake in a US$80mil diving support vessel (DSS), which could garner daily charter rate of US$80k-US$120k. The group hopes to secure a significant portion of Malaysia’s prospective IRM jobs, potentially worth RM1.8bil-RM2bil over 3 years.

Hence, this DSS is likely to be long-term EPS-accretive and underpins a strong likelihood of upgrades to consensus earnings over the next 1-2 years. Additionally, the group is exploring other upstream activities such as jack-up rigs, which could introduce additional re-rating catalysts. Valuations are compelling at an FY15F PE of 11x – 0.6x of the oil & gas sector’s 18x.

Others :

WestPorts : 1Q in line with expectations, P3 uncertainty still ahead          HOLD

Rubber Gloves : Growing margin risk on rising headwinds             NEUTRAL

QUICK TAKES

Berjaya Auto : Doubling production capacity        BUY

Genting Plantaions : RSPO membership suspended         SELL

Banking Sector : Key takeaways from UOB’s analyst briefing        NEUTRAL

Plantation Sector : Newsflow for week 28 April – 2 May                 OVERWEIGHT

NEWS HIGHLIGHTS

Yinson Holdings : To use rights proceeds to bid for jobs, repay banks

Malaysia Airports Holdings : Plans airport cities

Astro Malaysia Holdings : Measat’s 3B satellite launch on May 29

Eastern & Oriental : Minority shareholder drops appeal in Sime Darby case

Building Materials Sector : Steel players urged to consolidate

Property Sector : Demand likely to push up rental rates in Klang Valley

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