News

Bumi Armada secured contracts from LukOil- Nizhnevolzhskneft to provide three Ice-Class vessels to service offshore platforms in the Filanovsky field, Caspian Sea, Russia.

Each of the Ice-Class contracts is for a period of 10 years, with option to extend for another 20 years and to be delivered in Nov 2015. The Ice-Class contracts have an estimated value of US$262m (RM844m) for the fixed 10 years of charter with extensions of up to 20 years at an estimated value of US$483m (RM1.56bn).

An interim contract of approximately US$18m (RM59m) was also signed for the provision of 2 support vessels and 1 rescue vessels from third party charter which will commence in Nov 2014 pending delivery of the purpose built Ice-Class vessels.

Comment

We are positive on the long-term contract award and this will further strengthening the company foothold in the Caspian region. The company plans to grow current OSV fleet from 50+ to 80+ vessels in 5 years.

The three vessels comprising 2 new built Ice-Class support vessels and a new built Ice-Class multipurpose duty rescue vessels to provide services such as delivery of cargo and personnel, salvage, search and rescue functions, firefighting operations, towing and tanker mooring operations.

Keppel Shipyard is one of the options to build the vessels given its track record with Lukoil in delivering Ice-Class vessels. We estimate the cost of each vessel to be around US$30m.

The US$262m 10 years contract value translates to US$24k daily charter rate per vessels. With an assumption of 20% net margin, we expect it to contribute RM17m to the company bottomline from FY2016 onwards (only delivered in Nov 2015).

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.

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 given the contribution will only commence in FY16.

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 - 4 Dec 2013