News

Bumi Armada received a Letter of Interim Agreement from EnQuest to confirm intention to award a contract for the supply and operations of a FPSO to Bumi Armada, to operate in The Kraken field (UKNS Block 9/02b) in the UK sector of the North Sea.

The capex for the FPSO is around US$1bn with contract firm period of 9 years. The FPSO will have a storage capacity of 600,000 barrels. The production life for the field is anticipated up to 25 years and first oil is targeted in 2016.

EnQuests operates the Kraken oilfield with a 60% stake and is partnered by Cairn Energy (25%) and First Oil (15%).

Comment

We are positive on the contract award and is in line with our believe that the company will secure at least 1 mid-size FPSO (US$1bn capex) or 2 smaller FPSO wins in FY14 which was detailed in our report title” North Sea Kraken” dated 17 Oct 2013. We understand that the US$1bn Kraken FPSO is twice the size of normal FPSO Bumi Armada handled, we estimate it will contribute at least RM120m net profit to the bottomline (which was already factored in our earnings assumptions). To note, we see upside risk to our forecasts from FY13 onwards if the company manages to secure Madura (US$450m capex) projects (still on the process of reviewing but the timing of result announcement is uncertain at current moment after recent Indonesia graft scandal).

The company is also looking at several projects in West Africa at average US$1bn capex with one of the project in Angola to be announced in 1H14. Overall, the company is bidding for 12 projects globally.

FSRU and FLNG segments provide new growth opportunity going forward. The company will focus on small-scale FSRU and currently tendering for several projects in Asia and East Africa. We have not captured any contribution from FSRU projects in our earning assumptions. This will be the wild card for the company.

Funding is not an issue as it recently raised US$1.5bn under a multi-currency Euro medium-term note (EMTN) programme. Balance sheet remains manageable with gearing ratio expect to rise from 0.8x to 1.4x versus historical high at 4x in 2009.

Risks

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

Forecasts

Unchanged pending morel contract detail from company.

Valuation

We continue to like the company’s prudent approach in tendering projects and outstanding execution capability. Hence, we maintain a BUY call with an unchanged TP of RM4.30 based on unchanged 20x FY14 EPS of 21.5 sen/share.

Source: Hong Leong Investment Bank Research - 18 Nov 2013