News

Bumi Armada and its joint venture company, PT Armada Gema Nusantara have been appointed as FPSO lease contractor for the Madura Filed offshore Indonesia.

The contract value is US$1.2bn for a fixed period of 10 years with options of 5 annual extensions worth US$147m each.

Financial Impact

We have already factored in one mid-size contract win in our FY14 and FY15 forecasts.

We understand the contract value of US$1.2bn is for a 10- year firm contract period, translating to US$120m per annum. With assumption of 25% profit margin and effective stake of 50%, we expect it to contribute an average of RM47m to the bottom line.

Given the estimate capex of ~US$450m, we estimate Madura project to contribute RM420m (~3% of SOP) NPV to our SOP.

Comments

We are positive on the contract award and this is the third FPSO project win in 9 months after Kraken and Angola, expanding Bumi Armada’s FPSO fleet to 9. The total orderbook will surge by 11% to RM35.4bn.

We understand the company has submitted 4 bids for FPSOs in Ghana, Nambia, Mexico and Indonesia with capex worth US$3bn. In addition, the company is working on 6 more bids with a combined capex of more than US$10bn.

Given the robust outlook and number of projects to tender, Bumi Armada has proposed 1 for 2 rights and 1 for 2 bonus issue exercises which are expected to raise about RM2.2bn war chest and to be completed by 3Q14. Gearing ratio will fall from 1x to 0.7x. We believe the new FPSO projects will help to offset the dilution from the cash call.

FSRU and FLNG segments provide new growth opportunity going forward. The company will focus on small-scale FSRU and was a short listed bidder for several FSRU projects. 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 pending more detail information from company.

Valuation

We continue to like the company’s prudent approach in tendering projects and outstanding execution capability. Hence, we maintain our BUY call with unchanged TP of RM4.70 based on SOP valuation method.

Source: Hong Leong Investment Bank Research - 20 Aug 2014