Alam ... Nov10

CIMB Research
Investment highlights
• Maintain BUY. Alam has entered into an MOU with Yayasan Sabah to explore jointly oil & gas opportunities in Sabah. We take a positive view of this development given the Sabah state’s bright deepwater prospects. We retain our earnings forecasts but raise our target price from RM1.46 to RM1.56 as we roll it a year forward to end-CY12. Our target basis remains 10x P/E, in line with our target P/E for Petra Perdana’s (PETR MK, Underperform) marine support business. Alam remains a BUY, with the potential re-rating catalysts being 1) fleet expansion, and 2) successful pipe installation ventures.

• 3-way partnership for barge? The three main areas that the JV plans to explore are pipeline installation, marine services and subsea works. For the pipelineinstallation venture, we understand that Yayasan Sabah may be invited to take equity in a pipelay barge currently owned by Alam and Singapore’s Swiber (SWIB
SP, Outperform) on a 50:50 basis. Delivered last month, the 300-tonne, Malaysianflagged barge named 1MAS300 has yet to secure a contract. We have yet to impute any contribution from Alam’s pipe installation venture. SapuraCrest (SCRES MK, Outperform) is the leader in the pipe installation segment.

• Sabah beckons. Yayasan Sabah’s wholly-owned unit Yayasan Sabah Shipping Sdn Bhd has been identified as the vehicle to lead the state government’s thrust into the oil & gas sector. Alam is expected to facilitate the transfer and localisation of oil & gas-related technology in oil-rich Sabah, which is home to eight deepwater fields (Figure 3). Now that Kikeh is already producing, the Gumusut and Kakap fields are bustling with activity. The design process has started at Malikai and Kebabangan (Figure 3).


Recent developments
Alam added two vessels to its fleet recently. The 5,150HP Setia Iman was delivered last week while the 5,150HP Setia Luhur joined the fleet last month. Both vessels are working for Petronas Carigali offshore Peninsular Malaysia. The two new vessels have expanded Alam’s fleet to 38 vessels of various types (Figure 4). Two more vessels, Setia Perkasa and Setia Jati, are set for delivery next year.

Earnings outlook 
Gunning for RM1.5bn contracts. Armed with its growing fleet, Alam plans to enter the race for offshore maintenance contracts worth RM1.5bn over a 5-year period. 60% of these contracts will involve marine spread and the remaining will call for maintenance services for various offshore structures. We understand that the contracts may be awarded closer to year-end. Alam’s current orders are worth around RM600m, with long-term (> 1 year) charters making up the bulk of the orders.

Recommendation
Maintain BUY. We retain our earnings forecasts but raise our target price from RM1.46 to RM1.56 as we roll it a year forward to end-CY12. Our target basis remains 10x P/E, in line with our target P/E for Petra Perdana’s marine support business. Alam remains a BUY, with the potential re-rating catalysts being 1) fleet expansion, and 2) successful pipe installation ventures