- We maintain our BUY call on Bumi Armada with an unchanged SOP-based fair value of RM5.15/share, which implies a FY14F PE of 23x- a 15% premium to oil & gas stocks with market valuations above RM1bil.

- Our forecasts for Bumi Armada are maintained as we have assumed that the group’s wholly-owned Armada Perkasa floating, production, storage and offloading (FPSO) vessel will continue operating until 2018.

- The group has secured a 2-year extension of its bareboat charter as well as the operation and maintenance contract with Afren Energy Resources Limited for the Armada Perkasa FPSO from 1 July 2014. The extension contracts are valued at USD68mil (RM221mil).

- The original contracts for the Armada Perkasa FPSO were first awarded in 2008 and took effect from 1 July 2008 with a firm 5-year period and options to extend for a further 5-year period on an annual basis. This means that if the options were fully exercised, this charter will continue until 2018.

- The original contracts were first extended for a 1-year period in late October 2012. The FPSO has been operating in the Okoro-Setu Field, Nigeria throughout the contract period. Afren PLC is a leading independent exploration and production company listed on London’s Main Market.

- But excitement for the group stems from securing new FPSO charters as the market has already assumed that its existing contract options will be exercised. Upstream had earlier reported that Calgary-based Husky Energy is expected to finalise the FPSO charter this month for its Madura BD gas and condensate project off Indonesia, pending conclusion of talks with buyers on gas offtake prices.

- Bumi Armada is the clear frontrunner following a recent retender organised by Husky by a wide margin over a consortium led by Emas Offshore. While Bumi Armada;s FPSO charter value of US$1.2bil is higher than Husky’s budgeted $1.18bil, the difference of US$20mil is within 10% of the project budget.

- Additionally, the re-rating cycle for Bumi Armada continues to gain traction after recently securing a letter of interim agreement for EnQuest’s Kraken FPSO charter, which could be valued over 2x of the Madura project.

- Bumi Armada is also one of two short-listed candidates for the FPSO charter to Afren’s Okoro block off Nigeria. All in all, management indicates that Bumi Armada is actively involved in tenders for 12 overseas FPSO and 5 floating storage regassification unit (FSRU) charters. This underpins a potential upward rerating cycle in consensus earnings for FY14F onwards.

- The stock now trades at an attractive FY14F PE of 17x, or 15% below its peers’ 20x.

Source: AmeSecurities