Wednesday, June 27, 2012

Alam Maritim -- time for bottom fishing?

After falling for the longest time, Alam Maritim share price appears to be stabilizing around $ 0.50 ~ 0.55. The lowest price it ever hit was in 2008, quoted for around $ 0.36.

Moving sideway but in distribution mode usually is not a good sign especially the shares are held by many reputable institutional owners. It may fall off and breakdown during consolidation stage or take a long long time for big guys to distribute. However, institutional ownership is also a reason the share price is relatively more active compared to Sealink. For your information Sealink hit a new all time low.

The question is it a good time to watch or to accumulate?

The company revenue bottomed out in 2010 and incurred losses of 12 million after tax. There was unusual surged of RM 40 million in other expenses in that year but I could not find the reason in the annual report.

What is troubling is not revenue but the gross margin. Declining margins are very serious, it fell from 45% to 19%. It is very troubling indeed. This is definitely not related to under-utilized capacity(note no dramatic increase in depreciation cost). I believe the real trouble is the collapsed of charted rate.

As we all can see in the chart that charter rates above 20 k pounds/day were abnormal. Thus the super-normal profits of year 2008-2009(lagging effects kicked in later) were not real.

The company reported a few good news recently that they bagged new book orders from major oil MNCs. The book orders stood at RM 700 million that will last them 2 - 3 years. From revenue stand point, it is quite safe to say the worst is over - RM 300 to RM 350 million top line is not a problem. The tricky part is the gross margin as it will affect its profitability tremendously.

OSK research is making very aggressive margin recovery assumptions for 2012 and 2013. They assume net profit margin to improve between 15-20%. With that kind of assumption, they are tagging FV of RM 0.70. If they are wrong,  the downside will still persist.

Betting on fundamental recovery is difficult. Thus, stock left with two technical rebound possibilities:

1. News flow of Petronas awarding them contracts for brown field recovery projects.

2. Being acquired when the MA wave is sweeping OSV world. You may note that P/BV is relatively cheap that may attract vultures.

No comments: