- 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 today that Bumi Armada has teamed up with Keppel Shipyard and Japan’s IHI to bid for a for a frontend engineering and design contract on a proposed floating liquefied natural gas (FLNG) project off Equatorial Guinea in Central Africa (See Chart 5 for location map).

- With a contract potentially worth US$2bil (RM6.6bil), the consortium is bidding against a joint-venture between Texasbased Excelerate and Samsung Heavy Industries for the Block R project operated by London-listed Ophir Energy.

- If successful, this will be the first such conversion project from an old LNG vessel as the first three FLNG projects approved by Petronas in Malaysia and Shell in Australia have all been new build vessels. A final investment decision is expected to be made on the project by mid-2015, with first LNG exports starting in 2018.

- The advantage of a conversion option could reduce the FLNG costs by up to US$500mil, which could often mean clearing the final investment decision of oil field operators against the backdrop of ever-escalating development costs.

- Ophir has proposed an FLNG with a capacity of a 2 million to 2.5 million tonne per annum which will be fed with gas from seven subsea wells. The vessel’s minimum capacity is based on about 2.6 trillion cubic feet of gas so far discovered in Block R, and a feedstock of about 400 million cubic feet per day.

- According to the group’s CEO Hassan Basma, a converted FLNG with the capacity of 2 million tonne per annum to 2.5 million tpa could cost US$2bil. Bumi is understood to be offering a self-supporting prismatic type B containment system, with Excelerate focused on a membrane process. But the rival bid by Excelerate and Samsung have proposed a more expensive newbuild FLNG vessel.

- Meanwhile, Bumi Armada is also eyeing projects involving floating storage regasification units with average storage capacity of 125,000 cubic metres in Cyprus, Indonesia and Philippines. But the timing of the awards is uncertain at this stage given that the operators are currently negotiating for the sale of gas.

- Bumi Armada is leading the race to supply Eni with an FPSO which could cost up to US$1.5bil for its East Hub project in Block 15/06 off Angola. Additionally, the group is the leading contender for the Madura BD gas condensate FPSO charter and also one of two short-listed candidates for the FPSO charter to Afren’s Okoro block off Nigeria. The stock now trades at an attractive FY14F PE of 18x – 10% below its peers’ 20x.

Source: AmeSecurities