ALAM MARITIM RESOURCES BHD - 2008

MARC has affirmed its ratings of AA-IS and MARC-1ID /AA-ID on Alam Maritim Resources Berhad’s (Alam Maritim) RM500 million Sukuk Ijarah Medium Term Notes and RM100 million Commercial Papers/Medium Term Notes facilities respectively. The affirmed rating reflects the strong profitability and cashflow generated by Alam Maritim, a leading domestic provider of offshore support services. The rating outlook is stable and reflects MARC’s expectation that the group will maintain its competitive position and ability to secure long-term charter contracts, allowing appropriate credit measures to be sustained for its ratings. Moderating factors include a relatively high leveraged capital structure which is not expected to significantly decline in the near term on account of the group’s capital spending commitments and the noticeably longer collection period for its trade receivables. 

Alam Maritim is owner of 28 Malaysian-flagged vessels and the group expects a further 10 vessels to be delivered by 2010. Building on its entrenched market position as an integrated service provider in the domestic oil and gas services industry, Alam Maritim has expanded into related underwater services, offshore facilities construction and installation.

The domestic oil and gas support service industry is characterised by high levels of capital intensity, heavy regulation and prohibitive barriers-to-entry. National oil company, Petroliam Nasional Berhad’s (Petronas) continued support for local offshore service providers has created stable demand for local offshore support vessels. The industry’s requirement to service 253 existing and between 65-70 new platforms over the next five years, deepwater fields that are coming on stream and drilling wells that have been planned should benefit owners of ready-built vessels such as Alam Maritim.

Alam Maritim’s competitive edge lies in its young vessel fleet with an average age of less than five years that enables it to bid for lucrative long term contracts that typically have higher charter rates. Owing to favourable charter rates and better capacity utilisation of its vessel fleet in FY2007, total revenues grew by 10.2% to RM249.9 million and operating profit margins rose to 35.5%. In 1HFY2008, revenue and operating margins continued the uptrend by rising 11.2% and 41.1% respectively, boosted by the group’s underwater division increased contribution. MARC expects Alam Maritim’s future earnings to further improve in tandem with its expanded vessel fleet size and potential improvement in operating margins arising from cost savings through reduced reliance on chartering third-party vessels. Additionally, the bulk of its fleet have long-term charters which impart stability to its revenue at least until 2010.

Net cashflow from operations (CFO) in FY2007 improved to RM63.9 million (FY2006: RM37.73 million) after adjusting for an increase in receivables of RM46.7 million. Despite slower trade receivables turnover which deteriorated to 159 days in FY2007 compared to 123 days in FY2006, Alam Maritim’s CFO interest coverage of 4.37 times in FY2007 remains adequate for its rating level. The quarterly sinking fund build-up for the Sukuk Ijarah MTN facility helps mitigate refinancing risk. As at 28 June 2008, the designated accounts had a cumulative balance of RM25.17 million.

Strengths

• Sustained demand for offshore support vessels and marine services domestically, given the budget allocated for E&P activities; 
• Strong competitive position, third largest vessel owner among local offshore support players;
• Long-term charters provide revenue stability; and
• Reinvestment of retained earnings in fleet expansion.

Challenges/Risks

• Late delivery of vessels may exacerbate a relatively high leveraged capital structure; and
• Longer collection period for trade receivables.