Alam Maritim Resources Bhd
(Aug 27, RM1.13)
Maintain outperform at RM1.17 with revised target price RM1.70 (from RM2.40): We have tweaked downwards our FY10F/11F earnings by 2% to 4%. Rolling over our valuation to FY11F, we have trimmed our target price to RM1.70 (previously RM2.40) based on FY11 EPS of 16.4 sen and PER of 10.3 times. Nonetheless, we reiterate our “outperform” recommendation. We like Alam Maritim (AMRB) due to its strong operating track record and strategy in venturing into new businesses, such as its pipe lay barge and the Middle East and India markets, with its solid financial strategy of using the JV option to finance its new vessels.
AMRB’s annualised 1HFY10 net profit came below both our forecast and market consensus, which accounted for 64.8% and 68.7% of FY10 forecast respectively. The reason being lower earnings contribution from the offshore support vessels (OSV) services and underwater services segment. AMRB declared a final dividend of 75 sen during the quarter under review, translating into a gross yield of 0.6%.
In 2QFY10, net profit deteriorated by 33.7% year-on-year (y-o-y) on the back of 16.4% y-o-y drop in revenue. The weak performance was due to lower sales in the OSV services segment (-17.8% y-o-y) and underwater services segment (-71.6% y-o-y). Additionally, its share of profit from jointly controlled entities shrank by 28.1% to RM6.3 million, about 38.1% of its bottom line. Its earnings before interest and tax (Ebit) margin slipped by 13.5pps to 24.4% y-o-y due to higher operating expenses, up 14.4% y-o-y for 2QFY10.
AMRB’s key driver over the next two years is underpinned by the delivery of an estimated seven new vessels and contribution from its JV partners. We understand that about 60% to 70% of its current fleet of 33 vessels is chartered to Petronas and its PSC contractors, mostly on two to three-year terms. This will benefit AMRB by providing a recurring income and constant cash flow as well as an expansion of its business via vertical integration into new businesses such as pipe laying. — Inter-Pacific Research, Aug 27
This article appeared in The Edge Financial Daily, August 30 2010.
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