- We maintain our BUY call on Bumi Armada with a higher SOP-based fair value of RM5.55/share (vs. RM5.15/share previously), which implies an FY15F PE of 19x – on par with oil & gas stocks with market valuations above RM1bil. This stems from the raising of our FY14F-FY16F earnings by 13%-17% to account for the new Angola FPSO charter contract.

- As highlighted in our earlier reports, Bumi Armada has received a letter of intent (LOI) from eni Angola S.p.A. for the chartering, operation and maintenance contract to provide a floating, production, storage and offloading (FPSO) vessel for Block 15/06, East Hub, located in deep water offshore Angola.

- The 12-year fixed charter has an indicative value of US$2.9bil (RM9.5bil), with an optional extension of up to 8 years – of which management has not provided any guidance on the value at this juncture. The fixed charter value will raise the group’s firm order book by 72% from RM13.2bil to RM22.7bil, and total order book (including existing options) by 43% to RM31.6bil – above SapuraKencana’s RM25bil currently.

- This will be the seventh FPSO under the group’s expanding fleet, and potentially the most expensive to date, at up to US$1.5bil and above the recently awarded Kraken project cost of US$1bil. It is also the first FPSO project for Bumi Armada involving the conversion of a very large crude carrier (VLCC).

- The LOI is an interim agreement from which the group will proceed to commence the engineering and procurement works ahead of the final award, with first oil scheduled by end-October 2016.

- eni S.p.A., an Italy-based global oil & gas service provider, is the operator for Block 15/06 with a 35% stake in the joint venture with other partners, SSI Fifteen Limited (25%), Sonangol P&P (30%), Falcon Oil Holdings Angola SA (5%) and Statoil Angola Block 15/06 (5%).

- Besides this, the group is still seeking at least 9 other jobs, including a US$2bil floating liquefied natural gas project at Equatorial Guinea in Central Africa. The group remains as 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 from FY15F onwards. Based on our estimates, Bumi Armada’s net gearing of 0.7x as at 31 Dec 2013 could rise to 1.8x by end-FY15F from the Kraken and Angolan FPSO. This is still within its gearing target of up to 2x.

- 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 13x – 31% below its peers’ 19x.

Source: AmeSecurities