Journey to Wealth
Bumi Armada - Expanding deepwater AHTS fleet BUY
- We maintain BUY on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM5.05/share, which implies an FY12F PE of 26x.
- The group has expanded its anchor handling tug supply (AHTS) vessel fleet by two to 27 vessels. Overall, the group's total fleet, including accommodation workboats, supply, utility and other support vessels, has risen to 45.
- The two AHTS, which were designed and built in Japan in 2009, have deepwater capacity of 12,000 brake horse power (bhp). Both were acquired from Japan's Sanko Steamship, which is currently struggling financially.
- The 68 metre-long vessels have DP (dynamic positioning) 2 capability with 150-tonne bollard pull and can accommodate 30 personnel/vessel. The price of purchase for the two AHTS, which will be renamed Armada Tuah 107 and Armada 108, have not been disclosed due to competitive reasons.
- But we understand that the acquisition price was attractive due to the vendor's financial distress. Based on the net book value of Armada Tuah 105, which was built in 2009 with a capacity of 12,000bhp, we estimate that the price of each vessel could be below RM90mil (US$29mil), which is likely to be funded from external borrowings.
- The two vessels have not secured any charter yet but the announcement indicated that they will be deployed for deepwater activities in Asia, West Africa and Latin America.
- These acquisitions are not a surprise, as we had already highlighted them in our past reports. But the two new vessels will not have a significant impact on the group's earnings. Hence, we maintain our FY12F-FY14F net profits.
- Besides these two AHTS, the group is on the prowl to acquire additional platform supply vessels and accommodation work boats, given its tightening asset utilisation rates, almost at 100%. This also supports our view that marine charter operations for the industry are reaching an inflection point, which will lead to a significant increase in charter rates in 2H2012.
- We continue to like the stock due to the following re-rating catalysts:- (1) Likelihood of new floating production storage and offloading (FPSO) vessel contracts as oil & gas developments reignite globally, (2) tightening vessel utilisation rates, and (3) premium scarcity for oil & gas stocks with large market capitalisation.
- The stock currently trades at an attractive FY12F PE of 21x compared with SapuraCrest Petroleum's peak of 29x in 2007.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
