Jumaat, 15 November 2013

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The Star Online: Business

Alam Maritim sails into calm waters


ALAM Maritim Resources Bhd has been getting a string of contracts lately, pushing its order book to RM1.4bil, possibly one of its highest levels since the financial crisis of 2008.

In September alone, the company which currently derives almost 70% of its revenue from providing offshore support vessel services (OSV), obtained four contracts totalling more than RM120mil.

Last month, it got another RM22mil job supplying tug supply vessels for oil and gas firms to carry out their business activities.

Share price-wise, the Alam Maritim stock has doubled from 72.5 sen on Jan 2 to RM1.48 now, pushing the company's market capitalisation to above RM1bil.

In the same period, the benchmark index is up only 7%.

"Our shareholders must be happy," managing director Azmi Ahmad (pic) quips during a short interview with StarBizWeek.

Still, he is far from satisfied and certainly not proud of the company's achievements so far.

"These (referring to the recent contracts) are the jobs that we had earlier bid for and only recently have they flowed in," he says.

He is not expecting another "spurt" of contracts until the first quarter of next year.

Alam Maritim has put in bids valued at more than RM2bil, says Azmi, and going by historical data, aims to secure some 20% to 25% of the total.

Profit margins are between 17% and 19%.

"We want to beef up our other segments such as offshore installation and construction as well as sub-sea engineering and water services."

"Regionally, the company is not doing such businesses yet but we want to go regional in these segments, I think the potential is there," says Azmi.

Daily charter rates are in the company's favour as these have been on a general uptrend, going from a low of US$1 per brake horse power (bhp) in 2010 - 2011 to US$1.80 to US$2.20 currently.

OSV firms such as Alam Maritim are picking themselves up, to say the least from a slump that started somewhere in 2010 following the global financial crisis.

At that point, daily charter rates had fallen from a peak of US$2.20-US$2.70 per bhp to a low of US$1/bhp, no thanks to a heady mix of overbuilding, a credit crunch and a slash in oil exploration and production budgets which added salt to the wound.

RHB Research said given the tightening supply of vessels in the Malaysian market, it believed Alam Maritim stands to be the biggest beneficiary of rising demand for OSVs by virtue of its fleet of 44 vessels being one of the largest in the country.

Alex Goh, analyst at AmResearch who also tracks Alam Maritim says he is maintaining his forecast for the company's FY13- FY15 earnings with assumed higher vessel utilisation rates of 80%-90% as well as underwater and offshore installation & construction orders of RM300mil-RM500mil.

Currently, the company's vessels utilisation rate stands at about 79%.

Azmi says he wants to improve it by working on enhancing and making more efficient, Alam Maritim's value-add services such as its maintenance services.

Meanwhile, Goh is expecting the company to make a net profit of RM78.7mil for its FY13, RM119.2mil for FY14 and RM129.mil thereafter.

For FY12, it made some RM60mil in net profit.

"We understand that Alam Maritim hopes to secure RM1.2bil to RM1.5bil worth of contracts for underwater services, which were earlier extended to Offshoreworks Holdings Sdn Bhd, a company currently in financial distress.

"Hence, the group may enter a joint venture with Pacific Radius to acquire two diving support vessels to service its subsea inspection, repair and maintenance contracts, which could easily double prospective net margins," Goh told clients in a report last month.

RHB Research concurs in saying that fuelled by Petroliam Nasional Bhd's rising capex, vessel demand going forward should remain buoyant. Petronas has a five-year RM300bil capital expenditure plan to reverse current declining production.

The national oil company said in June that it would have to play catch-up after having spent only RM72bil, or 24%, of that amount between 2011 and January this year. In the same vein, it announced yesterday that it had awarded a major 13-package, five-year offshore hook-up, commissioning and maintenance services contract with a total work value of about RM10bil to six local service providers.

AmResearch's Goh has a "buy" call on the company and values it at RM2.45 per share while RHB's target price is RM2.

At the current price, it is trading at an FY14F PE of about 10 times, which is below industry's average of about 17 times.

While its healthy order book and incoming orders are likely to keep Alam Maritim's earnings visibility clear for at least the new few years, Azmi says there is no plan for the company to come up with a dividend policy anytime soon.

"We will start rewarding shareholders with something every year but for now, no plans for a dividend policy."

The company did not pay any dividends the last couple of years.

Palm oil firms on export prospects, typhoon concerns


KUALA LUMPUR/SINGAPORE: Malaysian palm oil rose Friday, gaining for five out of six weeks as data from India and Malaysia showed improving demand, while a possible shortage of competing edible oil from the Philippines lifted prices of palm-based substitutes.
    India's palm oil imports rose 21.4 percent in October from
the month before as strong demand in the festival season and low
domestic supply boosted purchases. 
    "Towards the second half of the month, exports should
improve further because China will be buying to replenish their
stocks before their Lunar New Year festival in January," said a
trader with a foreign commodities brokerage.
    Exports of Malaysian palm oil products dropped 4.6 percent
in the first half of November, cargo surveyor Intertek Testing
Services said, a slight improvement from shipments in the Nov.
1-10 period which fell a steeper 13 percent. 
    Another cargo surveyor Societe Generale de Surveillance said
exports during the period fell 8.2 percent to 734,476 tonnes
from 799,853 tonnes shipped during Oct. 1-15. 
    The benchmark January contract on the Bursa
Malaysia Derivatives Exchange closed up 0.9 percent at 2,609
ringgit ($815) per tonne. Total traded volume stood at 43,636
lots of 25 tonnes each.
    Palm oil prices have risen 4 percent this week, fuelled by
fears that super typhoon Haiyan had caused severe damage to
coconut crops in the Philippines, disrupting coconut oil supply
from the world's biggest exporter.
    A shortage of the edible oil would channel demand to palm
oil-based alternatives such as palm kernel oil ,
commonly used as a raw material to produce soaps and cosmetics. 
    Trade volumes however are low with investors staying away
from risky bets as they waited for more information on palm oil
production. Output in October rose to 1.97 million tonnes and
market players are expecting November to produce smaller yields.
    "Investors are looking for new leads besides the Philippine
issue. They want to see how the export and production situation
turns out," the Malaysia-based trader added.
    Malaysia has set its crude palm oil export tax for December
at 5.0 percent, a government circular showed on Friday. The rate
had been left unchanged at 4.5 percent since March.
    "If the tax goes up it should restrict exports," said a
Kuala Lumpur-based trader. "But the fact is that supply is
getting very tight, so I don't think the price will go down."
    In other markets, brent oil held above $108 a barrel,
heading for its biggest weekly gain since early July on
expectations the Federal Reserve will stick with its easy money
policy for now. 
    In competing vegetable oil markets, the U.S. soyoil contract
for December rose 0.6 percent at 0958 GMT, while the most
active May soybean oil contract on the Dalian
Commodities Exchange finished marginally higher.
($1 = 3.20 Malaysian ringgit)

  Palm, soy and crude oil prices at 1027 GMT
  Contract        Month    Last   Change     Low    High  Volume
  M'ASIA PALM OIL  NOV3       0    +0.00       0       0       0
  M'ASIA PALM OIL  DEC3    2618   +36.00    2564    2618     847
  M'ASIA PALM OIL  JAN4    2609   +20.00    2571    2620   16955
  M'ASIA PALM OIL  FEB4    2610   +19.00    2573    2620   10786
  DALIAN SOY OIL   MAY4    7256    +4.00    7250    7324  947296
  CBOT SOY OIL     DEC3   41.21    +0.24   40.97   41.32    4783
  NYMEX CRUDE      DEC3   93.83    +0.07   93.74   94.30   11960
  Palm oil prices in Malaysian ringgit per tonne
  CBOT soy oil in U.S. cents per pound
  Dalian soy oil in Chinese yuan per tonne

  Crude in U.S. dollars per barrel- Reuters

Yellen signals new emphasis on Fed policing role


NEW YORK: Move over inflation and job growth.

The next Federal Reserve chief appears set to direct the central bank's might at ensuring financial stability and stern banking oversight with the same vigor it currently applies to its traditional mandates of fostering price stability and maximum employment.

The question of monitoring and stabilizing Wall Street was a dominant issue during Fed chair-designateJanet Yellen's confirmation hearing before a Senate committee on Thursday. Yellen, widely expected to win Senate backing for the job, said financial regulation should be on par with monetary policymaking on the Fed's list of priorities.

The central bank's current vice chair, Yellen appeared willing to draw fellow governors on the powerfulFed Board into more decisions on stabilizing the still-vulnerable financial system.

In a telling exchange with Sen. Elizabeth Warren, Yellen said it was a "worthwhile idea" to consider reinstating regular board meetings to tackle financial supervision, as was the case at the central bank in the 1990s.

In strong language, she also said she was prepared to use traditional monetary policy tools such as higher interest rates to prick any emerging asset-price bubbles, and pledged that addressing too-big-to-fail banks "has to be among the most important goals of the post-crisis period."

While Yellen and current Fed Chairman Ben Bernanke often speak of the need to do more to curb WallStreet risk-taking and erase the notion the government will step in to bail out massive banks that get into trouble, as it did in the midst of the crisis, Yellen's testimony hints at a new approach.

"She was unambiguously clear on how the Fed has massively revamped supervision of big banks, and left me with the sense she will spend more time discussing macroprudential oversight with colleagues than in the past," said William O'Donnell, head of Treasury strategy at RBS Americas.

"It suggested they would shift to a better balance of macroprudential and monetary policy."

The Dodd-Frank law in the wake of the 2007-2009 financial crisis and Great Recession tasked the Fed with protecting the overall financial system from risks that could spill into the broader economy, something called macroprudential regulation.

The 2010 law effectively doubled down on the central bank's regulation of Wall Street, even though Fed policymakers - including Yellen, who ran the San Francisco Fed at the time - failed to avert the crisis in the first place.

Absorbing this fresh supervision task into the Fed's traditional dual mandate of stable prices and full employment has proven tricky: requiring banks to hold more and better-quality capital can for example clash with the Fed's desire for those banks to ramp up lending to spur investment, hiring and economic growth in the wake of the recession.


There also appears to be internal disagreement on how best to stamp out financial risks.

Dallas Fed President Richard Fisher is alone among U.S. central bankers in calling on regulators to go beyond Dodd-Frank and simply break up the too-big banks; and earlier this year Fed Governor Jeremy Stein set off a debate over whether the Fed should battle asset bubbles with tighter policies.

Yellen said on Thursday she does not yet see the broad buildup of leverage that threatens financial stability. Nor does she feel that U.S. stock prices - which are at record highs thanks in large part to the Fed's ultra easy policies - are in "bubble-like" territory.

Yet toward the end of the two-hour confirmation hearing, Yellen told Warren the Fed's "supervisory capabilities are critical and they are just as important as monetary policy." She added that despite some logistical hurdles, it could be possible to better involve policymakers in key regulatory decisions that are usually handled by staff.

"I remember in the 1990s that the board did regularly meet to discuss supervisory issues ... and I did consider those very valuable," Yellen said. "So I think that's a very worthwhile idea."

Those regular meetings faded as the Fed under Alan Greenspan and in the early stages of Bernanke's chairmanship favored a hands-off approach to bank regulation. Yellen, who was president of the San Francisco Fed from 2004-2010, is still smarting that she and other regulators failed to "connect the dots," as she put it in 2010, between loose lending practices and a overpriced housing market that helped spark the crisis.

Warren is an influential Democrat who made her name pushing tougher rules for banks, and she played a big role in the lobbying effort that knocked Yellen challenger Lawrence Summers out of contention for Fed chair earlier this year.

At the hearing, the senator highlighted a $9-billion settlement the Fed and the Office of the Comptroller of the Currency reached with several banks accused of improper foreclosures. Warren criticized the decision to simply let staffers lead the effort, instead of having Fed governors vote on the deal.

Such matters are typically handled by regulation experts at the central bank and spearheaded by Governor Daniel Tarullo, the Fed's point-person and chair of a three-governor committee on bank supervision that includes Stein and Jerome Powell.

"Tarullo has been carrying this load virtually single-handedly," said Ernest Patrikis, a partner at White & Case and a former first vice president at the New York Fed. "The question is, will that change with more Board involvement in evolving issues and matters?"- Reuters

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