Alam Maritim looking challenging in the near-term

KUCHING: The outlook of Alam Maritim Resources Bhd (Alam Maritim) is looking to be challenging in the near-term due an oversaturated off- shore vessel (OSV) market and the group’s dwindling cash position.

In a results note by the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), it was reported that Alam Maritim’s first quarter financial year 2017 (1QFY17) results were below expectations as it incurred core net losses (CNL) of RM10.1 million.

The CNL met 45 and 241 per cent of Kenanga Research and market consensus full-year net losses forecast.

“The negative deviation was due to lower-than- expected contribution from both offshore marine services and subsea/offshore installation & construction (OIC) segment,” explained the research arm.

Looking forward, the research arm expects losses to increase in the next two years for Alam Maritim due to oversaturation in the OSV segment causing slower contract awards expected for Alam.

It is anticipated that challenges in the OSV segment will continue throughout the year and FY17-18 vessel utilisation rate forecasts by the research arm have been lowered to 50 to 55 per cent.

To reflect this lower rates, Kenanag Research’s have increased their FY17-18E loss estimates by 37 and 91 per cent to RM31.3 and RM19.3 million respectively, indicating a looming default over the horizon.

In order to avoid default, Alam Maritim will need to submit a restructuring scheme within 60 days to Corporate Debt Restructuring Committee (CDRC) who have recently issued the group with a letter of approval.

Unfortunately, the group will also need to pay out a sukuk of RM30 million due in July and another RM45 million in Jan 2018.

Based on Alam’s current cash and bank balances of RM37.5 million and sinking funds set aside of RM11.7 million, Kenanga Research fears that it will be insufficient for Alam to repay the first maturing sukuk in July while providing the CDRC with an acceptable restructuring scheme.

That being said, the research arm has downgraded its call on the stock to ‘Underperform’ with a lower target price of RM0.15 from RM0.31, which is pegged to a lower price book valuation of 0.2 fold that is lower than -2.0SD below its 8 –year mean.