News

Bumi Armada announced that its wholly-owned Russian subsidiary, Bumi Armada Caspian LLC signed a supplementary agreement to the existing contract with Lukoil for an additional EPIC works (approximately 40kms of additional pipelines) worth RM567.6m.

The scope of work includes the engineering, procurement of the line pipes and associated appurtenances and installation and pre-commissioning of 6 infield/inter-field lines, for a total length of approximately 40kms. The work will be carried out using Bumi Armada’s derrick pipelay barge, the Armada Installer. The project will see the majority of construction work carried out and completed in 2015.

The contract is expected to contribute positively to the revenue and earnings for FY13 and thereafter.

Comment

We view the contract won positively, in line with our view that performance for the Transportation and Installation (T&I) divisions should run smoother than last year. We also understand the company is currently bidding for similar T&I projects from companies like Dragon Oil and Petrobras. Any contact win will be surprise on the upside.

The contract won increased the T&I order backlog to over RM2bn. The increased in revenue forecast for T&I will be offset by the oilfield services (OFS) segment as we choose to be more conservative by not factoring any contract win from marginal field. Overall, we maintain our forecasts.

The real growth of the company comes from FPSO wins. Although we concede award timing is uncertain, we continue to believe the company could secure a total of 2 mid-sized FPSO’s and one a year in FY 2014 and beyond. Meeting our expectations and surprising the market on the upside.

Current FPSO bids for Kraken (North Sea), Belud (Malaysia) and Madura (Indonesia) are still on the table. In addition, there are potential bids in Angola and Brazil.

Risks

• Increased competition, as new players enter the market.
• Execution risk, including oil spills and their clean-up costs.
• Unusual high portion of vessels dry docking or under repair.

Forecasts

Unchanged.

BUY

Positives –

• Excellent management and reputation.
• Ability to ride the growing offshore global trend.

Negatives –

• Increased competition makes growth more complex.
• Potential delays in securing contracts.

Valuation

We maintain our BUY rating and TP of RM4.88 based on unchanged 20x FY14 EPS of 24.4 sen/share.

Source: Hong Leong Investment Bank Research - 8 Jul 2013