Alam expects to announce its results this week, which we gather would likely be
within or below expectations, depending on whether management will be making any
provisions for the amount owed by Vastalux. Having said that, we see a better FY11
for the company as it has the right asset mix, which puts it in a good position to ride
on the current O&G focus on existing and marginal oil field developments. Maintain
Buy.
Accuracy of FY10 forecasts depends on whether provision is made. As we highlighted in our December 2010 company update, there may be a provision for doubtful debts arising from Vastalux amounting to RM30m. Also, we note that the meeting of Vastalux creditors in the same month was inconclusive because creditors including Alam did not agree to Vastalux’s proposals. The proposals include the issuance of 117.5m new Vastalux shares, 50% to be settled through the issuance of 293.6m redeemable cumulative unsecured loan stocks (RCULS) and the remaining 30% to be waived. Hence, we do not discount the possibility of Alam’s management making a provision for the sum owing to it, and if it does, the company’s 4QFY10 results are likely to fall into the red.
Otherwise 4QFY10 numbers may be flat q-o-q. This is because we noted that there had
been no change in the company’s operating environment in 4QFY10, as it did not
announce any major vessel contracts or the revision of charter rates. With Alam’s 9MFY10
and 3QFY10 net profit coming in at RM47.4m and RM8.9m respectively, we expect a
consistent quarter if no provisions for Vastalux are made.
A better FY11 seen. Given that Petronas has been aggressively awarding new O&G
contracts, especially those relating to existing and marginal oilfield developments, we
believe Alam stands a good chance of securing some of these jobs since its fleet utilization
is at about 70%, which indicates that there is still room to grow its earnings. Also, the
company has the right asset mix (comprising mainly 5k bhp vessels), which fits into the
current O&G development theme.
Maintain Buy. Our target price for Alam remains unchanged at RM1.50 based on a PER of
15x FY11earnings. Although investors may be uncomfortable with the negative news flow
on Vastalux, we believe that this unfortunate event would probably have been built into its
current share price, and that investors should turn to the company’s longer term outlook
instead.