News

Bumi Armada has received a Letter of Intent (LOI) from Eni Angola S.p.A to award a contract for the supply and operation of a FPSO for deployment at Block 15/06, East Hub located offshore Angola.

First oil is scheduled for end-Oct 2016, with engineering and procurement work on FPSO commencing immediately on 28 Mar 14. The contract has an indicative value of approximately US$2.9bn (RM9.5bn). The FPSO will be delivered in 31 months with an estimated capex of US$1.5bn (vs Kraken of US$1bn).

Financial Impact

We have not factored in contract win for Angola project in our forecast. We only factored in one mid-size contract win (capex of US$500m) in FY14 and FY15 forecast.

We understand the contract value of US$2.9bn is for a 12- year firm contract period, translating to US$240m per annum. With an assumption of 25% profit margin, we expect it to contribute an average of RM190m to the bottom line.

This contract win will boost firm contract period orderbook by 71% from RM13.2bn to RM22.7bn.

To note, large-scale FPSO projects with long tenure will be treated as financing leases (such as C7 and Kraken). We expect the Angola project (12+8 years contract with capex US$1.5bn) will also be treated as a financing lease.

Comments

We are very positive on the contract award and this is second large FPSO project secured after Kraken in Dec, expanding Bumi Armada’s FPSO fleet to 8.

Overall, the company is bidding for 9-10 projects globally (~12-16 FPSO awards in a year). The progress of the bidding on Madura remains on track.

We see higher upside risk to our forecasts from FY14 onwards if the company manages to secure Madura (US$450m capex), which will prompt us for an upward revision in TP.

FSRU and FLNG segments provide new growth opportunity going forward. The company will focus on small-scale FSRU and has short listed bidder for several FSRU projects in 2013. We have not captured any contribution from FSRU projects in our earning assumptions.

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 official signing on Angola project and financial model adjustment (clarification on accounting treatment for Kraken projects).

Valuation

We continue to like the company’s prudent approach in tendering projects and outstanding execution capability. Hence, we maintain our BUY call with an unchanged TP of RM4.87 based on unchanged 20x FY15 EPS of 24 sen/share.

Source: Hong Leong Investment Bank Research - 1 Apr 2014