- 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.

- Upstream reported recently that Bumi Armada is leading the race to supply Eni with a floating production, storage and offloading (FPSO) vessel for its East Hub project in Block 15/06 off Angola, although a deal has not been finalised.

- The report said that Bumi has the edge over its only remaining rival, Milan-based Saipem, although nothing is certain until state oil player Sonangol rubber stamps the proposed award.

- One key factor in Bumi’s emergence as current favoured bidder is Saipem’s perceived move away from the FPSO business as the Italy-based operator sold its Firenze FPSO off Italy to operator Eni.

- In terms of local content, it is unclear what Eni’s strategy is for the East Hub FPSO. The Paenal yard is the only facility that is able to handle FPSO-related work, but it is believed that there has been no formal approach by Bumi Armada or Saipem to use the Porto Amboim site.

- Paenal’s shareholders are Sonangol, Daewoo Shipbuilding & Marine Engineering and SBM Offshore - which is speculated to be hoping to snare the East Hub job if a deal with Bumi does not materialise.

- Eni’s East Hub development is focused on exploiting the Cabaca North and Cabaca Southeast discoveries, out of which first oil is set to flow in 2016 or 2017. The FPSO is similar in size to the N’goma floater to be supplied by SBM for use on the West Hub project in Block 15/06. East Hub calls for 23 wells to be tied back to a second 100,000-bpd FPSO and will likely host existing and future discoveries.

- Assuming an 8-year charter, we estimate that this contract could easily raise the group’s order book by US$1bil (RM3.3bil) from RM20.5bil currently to RM24bil. We maintain our forecasts for Bumi Armada which assumes the award of 2 new FPSO charters this year.

- Besides the Eni tender, the group is also likely to secure another FPSO charter for the Madura BD gas condensate development in Indonesia, which could be worth US$1.2bil. Additionally, the group is also one of two shortlisted candidates for the FPSO charter to Afren’s Okoro block off Nigeria. These fresh prospects underpin a potential upward rerating cycle in consensus earnings for FY14F onwards.

- The stock now trades at an attractive FY14F PE of 18x, or 10% below its peers’ 20x.

Source: AmeSecurities