- We maintain our BUY call on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM4.30/share, which implies an FY13F PE of 24x.

- Upstream reported that Bumi Armada’s bid for the 15-year Madura floating production storage and offloading (FPSO) vessel charter contract may be re-tendered as the proposed prices came in over 40% of the $857 million budget approved by Indonesia’s upstream regulatory body, SKKMigas.

- Under Indonesia’s tender regulations, the operator Husky Energy is expected to call on the two final bidders, which involve Bumi Armada and a three-party consortium ofIndonesia’s Sillo Maritime and Singapore-based Ezra Holdings’ Emas Offshore Construction & Production (EOC) and Federal Offshore Service, to re-negotiate the commercial terms. However, the vast price differential suggests that the project budget has to be revised upwards and a re-bid could be on the table.

- Bumi Armada and the Sillo-EOC-Federal Offshore consortium were among the three contenders to have made it past the technical stage of the Madura BD FPSO tender. The Madura BD FPSO is designed to process 110 million cubic feet per day of gas, 8000 barrels per day of condensate, 20 tonnes per day of sulphur and 2500 barrels per day of water, as well as storing up to 370,000 barrels of condensate. We believe that the earlier targeted production commencement date in the second half of 2015 could be delayed due to this development.

- But we are not revising our FY13F-FY15 earnings for now as the three FPSO contracts which Bumi Armada was in the final short-list and management indicated could be awarded this year was EnQuest’s Kraken project in the North Sea, Afren’s Okoro block off Nigeria and ENI’s OML field of Nigeria. Additionally, amongst 172 FPSO projects in the planning stage globally, the group has identified up to 34 developments in which it is likely to participate in (See Charts 1-2).

- Hence, we continue to like the stock due to:- (1) Likelihood of new floating production storage and offloading (FPSO) vessel contracts as oil & gas developments reignite globally, (2) tightening vessel utilisation rates, and (3) premium scarcity for oil & gas stocks with large market capitalisation.

- The stock currently trades at an attractive FY13F PE of 22x compared with SapuraCrest Petroleum’s peak of 29x in 2007. But for our oil & gas picks, we prefer SapuraKencana Petroleum, which has a larger order book, more transparent earnings growth momentum from its recent tender rig acquisitions from Seadrill and larger exposure to domestic oil & gas contract awards.

Source: AmeSecurities