- 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.

- The Edge Malaysia reported over the weekend that Bumi Armada has acquired a 15-year old very large crude carrier (VLCC) Ulysses (formerly known as Phoenix Voyaer) from Independent Tankers Corp for below US$25mil.

- The vessel has a capacity of 309,995 deadweight tonne, and was built by Samsung Heavy Industries in 1999. This VLCC is likely to be used for conversion into a huge floating production, storage and offloading (FPSO) potentially costing US$1.5bil for Eni’s project in Block 15/06 off Angola.

- The cost of this Angolan FPSO is 3x the usual mediumrange vessels worth US$500mil currently in Bumi Armada’s fleet of 7 FPSOs- with the exception of the recent Kraken project, which will cost US$1bil.

- As highlighted in our report on 15 Jan this year, Bumi Armada is leading the race to supply Eni with an FPSO vessel for its East Hub project in Block 15/06 off Angola.

- Upstream had earlier reported that Bumi Armada is the favoured bidder over its only remaining rival, Milan-based

Saipem which is moving away from the FPSO business as the Italy-based operator sold its Firenze FPSO off Italy to operator Eni, the operator of the Angolan block.

- Besides these 2 huge projects, the group is still seeking at least 9 other projects, including a US$2bil floating liquefied natural gas project at Equitorial Guinea in Central Africa. The group remains the leading contender for the US$500mil Madura FPSO project in Indonesia.

- These increasingly visible project pipelines underpin a potential upward re-rating momentum for consensus earnings for FY15F onwards.

- Based on our estimates, Bumi Armada’s net gearing of 0.7x as at 31 Dec 2013 could rise to 1.75x by end-FY15F from the recent Kraken FPSO as well as the Angolan project. This is still within the group’s gearing target of up to 2x.

- But with multiple projects still in the pipeline, the group earlier indicated intentions to raise US$2bil (RM6.6bil) in debt and rights issue. While the proportion of debt to equity is still being considered at this juncture, these M&A activities are likely to catalyse further excitement for the stock.

- Bumi Armada now trades at an attractive FY15F PE of 16x – 16% below its peers’ 19x.

Source: AmeSecurities