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

- We have fine-tuned Bumi Armada’s FY14F-FY15F earnings, which have already incorporated contributions from its recently secured Kraken floating, production, storage and offloading (FPSO) contract and a moderate recovery in utilisation rates for its offshore support vessel (OSV) segment.

- However, the group’s FY13 net profit of RM431mil (+12% YoY) was below expectations, coming in 13% below our forecast and 12% below street’s RM490mil largely due to weaker vessel utilisation and lower margins for the OSV segment, and associate loss due to fair value adjustments. The group declared a dividend of 3.25 sen (+8% YoY), which is above our forecast of 2.9 sen.

- Sequentially, the group’s 4QFY13 net profit decreased by 27% to RM88mil despite a 2% increase in revenue to RM557mil. This stemmed from:- (i) changes in Malaysian requirements in OSVs, which led to a 3ppt decline in vessel utilisation rates; (ii) RM13mil associate loss due to a one-off lease accounting adjustment for the India-based FPSO; and (iii) a 7ppt seasonal decline in transport and installation margin to 13%. These were partly offset by a RM29mil writeback for deferred tax provision.

- With the award of the Kraken FPSO charter, the group’s order book (including options) has surged by 74% from RM12.7bil to RM22.1bil – out of which 60% are firm commitments.

- Upstream recently reported that Bumi Armada is leading the race to supply Eni with an FPSO for its East Hub project in Block 15/06 off Angola, although a deal has not been finalised. We now understand that the vessel plus conversion costs could reach US$1.5bil, even larger than the recent award for the Kraken FPSO.

- Assuming a 12-year fixed charter, we estimate that the Angolan FPSO contract could easily raise the group’s order book by US$3bil (RM10bil) to RM32bil. We maintain our forecasts for Bumi Armada for now, 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 short-listed andidates for the FPSO charter to Afren’s Okoro block off Nigeria. These increasingly visible project pipelines underpin a potential upward re-rating momentum for consensus earnings for FY15F onwards.

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

Source: AmeSecurities