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

- Bumi Armada plans to set up a US$1.5bil (RM4.9bil) SGXlisted Multi Currency Euro Medium Term Note Programme with joint-arrangers The Hongkong and Shanghai Banking Corporation, Merrill Lynch (Singapore) Pte. Ltd. and Oversea-Chinese Banking Corporation Limited.

- Assuming that net proceeds are utilised to fully refinance the group’s total debt of RM2.9bil (0.7x gross gearing) currently, the remaining proceeds of RM2bil (US$614mil) is sufficient to fund a single floating production storage and offloading (FPSO) vessel.

- Given that group has a target to secure two FPSO charters annually, we expect future asset acquisitions to be funded via special purpose vehicles which are ring-fenced by long-term charters. Assuming debt to equity ratios of 80:20, we view that these proposed debt facilities could be sufficient for the group’s requirements for the next 2-3 years.

- However the timeline for Bumi Armada to secure an additional FPSO charter remains opaque as regional development plans are being deferred or retendered due to design charges or cost escalations. Note that the group did not secure any FPSO charter last year, and it finally secured the US$1.1bil Cluster-7 charter in a 50:50 JV with Sharpoorji Pallonji & Co Ltd from India’s ONGC in February this year.

- Amongst 172 FPSO projects in the planning stage globally, the group has identified up to 34 developments, of which Bumi Armada is still on the short list for three tenders – EnQuest’s Kraken project in the North Sea, Afren’s Okoro block off Nigeria and ENI’s OML field of Nigeria (See Charts 4-5).

- We understand that the group is hoping for the announcement of new FPSO charter awards for the Belud field off Sabah and Madura field in Indonesia by the end of the year. We view that the likelihood of winning these tenders are uncertain as there are other formidable bidders - M3Nergy and MISC for the delayed Belud contract and Ezra-Sillo Maritime-Federal Offshore Service consortium for the Madura project.

- The stock, which is more exposed to uncertain overseas orders, currently trades at a fair FY14F PE of 19x - almost at parity to 20x for oil & gas stocks with market capitalisations above RM1bil. 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