Alam’s utility boat contract win a positive development

KUCHING: Alam Maritim Resources Bhd’s (Alam) utility boat contract win has been deemed as positive to the group, having exceeded orderbook replenishment assumptions.

In a filing on Bursa Malaysia, Alam’s board of directors announced that wholly- owned subsidiary Alam Maritim (M) Sdn Bhd was recently awarded a contract for the provision of one unit of 40 tonnes bollard pull utility boat for Terengganu Crude Oil Terminal operation by Petronas Maritime Services Sdn Bhd.

The contract value is approximately RM26.09 million and is for a primary period of four years and 211 days with an extension for option of one year.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the contract award is positive to Alam as it marks its third contract award announcement for 2017 -- helping to improve the group’s overall vessel utilisation.

Based on Kenanga Research’s back of envelope calculations, the contract implies a daily charter rate (DCR) of RM15,600 per day, which is more than 20 per cent lower as compared to previous contracted rate of RM20,000 per day few years back.

“While specific vessel utility vessel is not disclosed, Alam’s utility vessels have an average age of nine years,” it said.

Hence, Kenanga Research anticipated the contract to fetch earnings before interest and tax (EBIT) margin of 10 per cent, lower than Alam’s historical 15 per cent EBIT during better times.

Assuming EBIT margin of 10 per cent, the research arm estimated the contract will contribute RM0.6 million to the group’s EBIT per annum.

Meanwhile, Kenanga Research projected that the offshore support vessel (OSV) segment is expected to stay challenging in 2017 despite stabilisation of crude oil prices given that the market is still flooded with idle newer vessels.

As such, the research arm did not foresee a strong recovery in charter rates in the near term.

On the other hand, the research arm reckoned margins for underwater services segment are under pressure and will be hit by low asset utilisation in its pipe-lay barge and diving support vessel as the contracts secured are mostly short-term, thereby creating time gaps in between jobs (one to two months).

With the newly secured contract, it brings the year to date (YTD) win to RM159 million, exceeding Kenanga Research’s RM150 million order-book replenishment assumption for financial year 2017 (FY17) by six per cent.

“Thus, we are narrowing our FY17/18E losses forecast by 16 per cent/32 per cent to RM22.8 million and RM10.1 million respectively assuming higher orderbook replenishment of RM200 million,” it said.

All in, Kenanga Research reiterated ‘market perform’ call on the stock.