Yes, haulage, containers, shipping, vessels ... all are still struggling to recover from slowdown. Hence if you point to someone about a stock in those industry, its not going to generate much enthusiasm. I know zilch about the stock, but managed to gather 6 different research reports on Alam Maritim (all issued over the last 2 months).
I looked at the chart after seeing a significant jump in volume, which, if you go back 12 months, you would not find a similar jump. Then there is the news submitted by the company on an MOU signed with Yayasan Sabah. OK, now got to check if there was a run over the past few weeks so you are not trapped by a sell on news scenario. Look at the chart, very clean, cannot see any assiduous accumulation anywhere. This got interesting.
Checked the various analyst reports. All issued prior to the Yayasan news.
Kenanga - 1HFY10 net profit of RM38.1m came in at a dismal 34% of our forecast and consensus due to softer earnings from Offshore Marine Vessels (OMV) and Underwater Division, which is on stand-by pending delivery of the pipelay barge expected to be in September 2010.
Vessel chartering revenue came from 29 vessels (total 32 vessels) which have been contracted out and together with a special contract for a work barge (chartered from 3rd party). However, the work barge’s low margin from high 3rd party charter rate contributed the 9% decline in OMV’s operating profit margin.
Pipelay barge is expecting a charter rate of up to RM100k per day but no contract secured at this juncture as management is still in the midst of contract bidding. YoY, YTD net profit of RM38.1m was 25.6% lower on the back of c.7% decline in OMV division’s revenue and 24.4% decline in underwater water’s division.
Underwater division contributed mere RM31.0m revenue as oppose to c. RM41.0m in IHFY09. Promising quarters ahead. OMV division is also anxiously waiting for the remaining two AHTS deliveries within the year under the 49:51 JV with Lembaga Tabung Haji worth USD121.5m, bringing to total six. No prospective contracts secured as yet, but the much anticipated domestic upstream contracts to be awarded in 2HFY10 should help to sustain fleet utilisation especially newbuilds.
Revising FY10 net profit downward by 6% from RM111.5m to RM105m and FY11 by 4% from RM112m to RM108m as we factor in lower contribution from the Underwater division due to the idling time. Downgrade to HOLD with revised target price of RM1.06 based on 8x FY11 FD EPS 13.2sen. Although we remain positive on Alam’s prospects in view of upcoming new builds (AHTS and pipe-lay barge) and sustained utilisation, we are cautious at this juncture until contracts are secured.
Maybank Research - Cut TP to RM1.15 (-28%). We expect Alam’s next two quarterlyperformances to mirror 2Q’s. Tenders for vessels are building up but most of the contracts are only expected to be realised in 4Q.
Alliance - JVs with Swiber and Pacfic Crest to anchor earnings going forward. Recall, Alam has earmarked an estimated RM100m capex (Alam’s 50% portion under the Swiber JV deal) for the acquisition of a 300 men accommodation pipelay work barge. The remaining balance is for the purchase of 2 remote operating vehicle (ROVs) equipment and a dive set.
Separately early this month Alam has entered into a joint venture agreement with Pacific Crest Pte Ltd to purchase an accommodation work barge. Both these ventures are expected to anchor earnings going forward. Alam’s growth driver beyond FY10 will be largely underpinned by contribution from its JV partners as well as an estimated 70% of its vessels are locked in on long term charter rates. Specifically only an estimated 6 vessels and 4 vessels would be due for renewal in 2010 and 2011 respectively out of a total of 32 vessels.
Maintain Buy. Our target price is RM1.48 based on 10x FY11 EPS.
OK, the research is all over the place. Now let's look deeper into the announcement: The MOU was entered into, to record the understanding of the Parties;
a. to collaborate and form a joint venture company to be involved in,
(i) the provision of offshore installation construction, including pipeline replacement, pipeline repairs, shoreline approach, export facilities and offshore facilities;
(ii) the provision of offshore marine operations, including platform supply vessels and other specialized vessels particularly for deepwater operations;
(iii) the provision of subsea works, including commercial diving and remotely-operated vehicles, (all these hereinafter referred as Services) to the energy industry in Sabah;
b. to co-own strategic assets required for the provision of the Services such as offshore construction assets (including a pipe-lay barge) subject to mutually agreed terms; and
c. to facilitate the localisation and transfer of oil and gas-related technology into Sabah.
While its still at MOU stage, the jv looks to be a highly significant venture to Alam Maritim's bottomline. Why, you might ask. Let's look at what Yayasan Sabah is all about: YSS is a wholly owned subsidiary of Yayasan Sabah Group, a private limited company incorporated in Malaysia. Yayasan Sabah Group has significant investments in various industries in Sabah.
Having been successful in timber, agro-plantation sector and oil palm, the Group has recently identified oil and gas sector as another key economic area to be developed in the State. YSS has been identified to lead the State Governments thrust in tapping this fast-growing sector.
Scope of the MOU
AMRB and YSS have agreed to enter into the MOU to set out their non-binding responsibilities, obligations, intentions and mutual understanding in connection with their interest in developing the oil and gas opportunities in Sabah waters. The way I look at it, Alam Maritim is locked at the lower end of valuations owing to a sluggish industry recovery. Hence pricing wise its not expensive. It might not be the sector exposure you want to be in right now, you might be a tad early. Or if you believe Alliance research piece alone, on its current ops, its worth RM1.48 already. Throw in the MOU, I think its a highly significant boost should it come through. Take it together with the share price / volume movements yesterday, I like it a lot.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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