Alam Maritim - BUY - 21 May 2008

Alam Maritim Resources - Slow start to the year but still bullish (Results Note)



Price: RM2.10

Target Price: RM3.32

Recommendation: BUY



· 1QFY08 net profit of RM11.2m was below expectations and consensus at 16% of our earnings estimate of RM71.3m and consensus estimate of RM70.7m. Alam Maritim Resources ("AMRB") recognised only RM7.6m in revenue and RM1.6m in gross profit from charter of 3rd party vessels and RM1.0m in ESOS share based payment.

· Management represented that contributions from charter of 3rd party vessels was below its historical range of RM20.0m to RM30.0m in revenue and RM4.0m to RM6.0m in gross profit due to abnormally strong monsoon rainfall in 1QFY08 leading to decreased short term charter of 3rd party vessels.

· AMRB still recorded YoY growth. 1QFY08 net profit of RM11.2m was 33% lower QoQ due to the aforementioned factors but still 10% higher YoY higher due to contributions from charter of own vessels which command more than 50% gross margins compared to charter of 3rd party vessels which command approximately 20% gross margins.

· No downgrade in earnings estimates. The strong monsoon rainfall in 1QFY08 has subsided and contributions from charter of 3rd party vessels should resume to historical levels from hereon onwards. In addition, AMRB will take delivery of eight vessels this year. We are confident that our full year FY08E net profit of RM71.3m will be realised if not exceeded.

· Due to >US$100/bbl crude oil, we understand from other offshore support vessel operators that the long term average daily charter rate for Malaysian flagged AHTS has increased from US$2.00/bhp to US$2.60/bhp. In addition, AMRB will take delivery of four vessels by FY10. Growth will be driven by fleet count growth AND higher charter rate reversions.

· Reiterate BUY call and RM3.32 target price based on DCF valuation method utilising 5% terminal growth rate and 12% WACC. RM3.32 implies an undemanding 16x FY09E PER and 15x FY11E PER (when all thirty four vessels operate on full year bases).

· We continue to like AMRB for its robust earnings growth potential, high earnings visibility and 'easy to understand' business model. It is also a good hedge against high crude oil prices as higher crude oil prices translate into larger budgets for oil majors to pay higher charter rates.







KENANGA INVESTMENT BANK BERHAD (15678-H)