Bumi Armada; Buy; RM3.85
Price Target: RM4.50; BAB MK

BAB announced that it has secured a 2-year contract extension worth RM221m for the FPSO Armada Perkasa from Afren Energy Resources Limited, with effect from 1 Jul 2014. Armada Perkasa has been working at the Okoro-Setu field in Nigeria since 2008 under a fixed term of 5 years with 5 one-year extension options. The latest 2-year extension marks the 2nd  and 3rd  optional extension years, underlining BAB’s strong execution track record.

The contract extension underscores the long-term nature of its FPSO assets which will provide strong earnings visibility to the Group. BAB’s order book stands at RM8bn (as at Sep13), of which 66% (RM5.3bn) comes from its FPSO business. We understand that BAB still has 11 on-going FPSO tenders, suggesting more contract wins in the pipeline. We expect BAB to achieve 3-year earnings CAGR of 26% over FY12-15F.

We maintain our BUY rating and RM4.50 TP (20x FY14 EPS), implying 17% upside potential. Valuation remains undemanding at 17x FY14 PE, which is -1.5x SD of mean – the lowest since its IPO in Jul11. Recent share price weakness due to BAB’s exclusion from the Syariah-compliant list is a good opportunity to accumulate. 

Source: HwangDBS Research - 17 Dec 2013