News

Bumi Armada announced that Afren Energy Resources has extended its contracts for the bareboat charter and the operations & maintenance respectively of the FPSO Armada Perkasa for another two years, with effect from July 2014.

The extension contract has an estimated value of RM221m.

The original contracts were first awarded in 2007, to take effect from 1 July 2008, for a fixed term of five years with five one-year extension options thereafter. The initial optional extension of the contract was extended in October 2012, for a one year period with effect from 1 July 2013.

Comment

We are positive on the contract award as the extension of the two-year contracts by Afren is for the second and third optional extension years which underscore the quality of the asset as well as the operations and maintenance services provided by the company.

Armada Perkasa has been operating for Afren since 2008 with more than 98% uptime. To date, the FPSO has lifted over 32m barrels of oil.

The two years extension contract value translates into US$90k of implied day rates which are in line with our expectation. We maintain our earnings forecast as we already factored in the contract extension.

To note, we see upside risk to our forecasts from FY14 onwards if the company manages to secure Madura projects (US$450m capex), which is still in the process of reviewing but the timing of result announcement is uncertain after recent Indonesia graft scandal.

The company is also looking at several projects in West Africa at an average US$1bn capex with one of the projects 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 is 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 wildcard 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.

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 - 17 Dec 2013