-  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.

-  We maintain our forecasts for Bumi Armada as the award of the Kraken floating production, storage and offloading (FPSO) contract is within our assumption of 2 charters annually. Also, our DCF already assumes the award of 3 new FPSO charters this year.

-  Bumi Armada finally signed the bareboat plus operation and maintenance (O&M) contracts with UK independent oil & gas operator EnQuest subsequent to the letter of intent issued in September this year for the Kraken FPSO charter - the group’s maiden project in the North Sea region.

-  The aggregate contract value of Kraken’s bareboat and O&M contracts works out to US$1.4bil or (RM4.6bil) for the initial charter period of 8 years, excluding a further US$924mil (RM3bil) if EnQuest fully exercises 17 annual extension options. This will raise Bumi Armada’s total order book (including option value) by 59% from RM12.9bil currently to RM20.5bil.

-  The FPSO is expected to commence operations in the Kraken Field in the first half of 2016. The group will be using a recently built ice-class tanker for the FPSO conversion, which will have a storage capacity of 600,000 barrels and handle a peak fluid rate of 460,000 barrels per day and 20mmscf of gas.

-  Kraken is a large heavy oil accumulation, which has estimated 140mil barrels of oil equivalents, located in the East Shetland basin, to the west of the North Viking Graben, 125 kilometres east of the Shetland Islands (See Chart 5). EnQuest operates the GBP4bil (RM20bil) project with a 60% interest and is partnered with Cairn Energy (25% interest) and First Oil Expro (15%).

-  The value of Kraken’s annual charter of RM575mil is 1.6x the value of the Armada Prima’s Apache Energy contract in the Balnaves field, west Australia. This is not a surprise as we understand that the Kraken vessel cost could reach US$1bil (RM3bil), which is twice the size of the group’s current individual FPSO projects.

-  Besides this charter, the group may secure another FPSO charter for the Madura BD gas condensate development in Indonesia, which could be worth US$1.2bil. 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. These fresh prospects underpins a potential upward rerating cycle in consensus earnings for FY14F onwards.

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

Source: AmeSecurities