Bumi  Armada's  9MFY12  results  were  within  our  expectations  but  below consensus',  accounting  for  68.8%  of  our  and  59.8%  of  consensus  full-year estimates.  Sequential  earnings  were  up  marginally  by  3.4%  but  on  a  y-o-y  basis, earnings  grew  17.8%  due  to  higher  margins  from  its  new  FPSO  and  OSV  vessels coupled with additional T&I contracts. It expects its OSV business to remain stable next  year  and  is  looking  to  secure  new  FPSO  contracts  very  soon.  Despite  the slower-than-expected  contract  delays  for  its  FPSO  business,  we  are  retaining  our BUY call on Bumi Armada, with an unchanged fair value (FV) of RM4.35.

Within  expectations.  Bumi Armada's 9MFY12 results came in within our but below consensus expectations, accounting for 68.8% and 59.8% of our and consensus full-year estimates  respectively.  Nonetheless,  earnings  swelled  by  17.8%  y-o-y  although  revenue grew marginally by 0.7% due to a massive 98.2% plunge in revenue contribution from its oil  field  development  (OFD)  business.  Nonetheless,  revenue  growth  from  its  floating, production,  supply  and  offloading  (FPSO),  offshore  support  vessel  (OSV)  and transportation and installation (T&I) businesses, which grew 22.1%, 11.7% and 37.7% y-o-y  respectively,  managed  to  offset  the weaker  OFD  performance.  The  stronger-than-expected  earnings  were  due  to  stronger  operating  profits  (EBITDA  margin:  60% YTD 2012 vs 50% for the corresponding period last year) as a result of higher margins from its new FPSO and OSV vessels, coupled with additional T&I contracts.  

Sequential earnings up by 3.4%. Despite growing its revenue by 20.0% q-o-q, earnings crept up by a marginal 3.4%, mainly attributable to foreign exchange losses on translation and  derivatives  of  RM5.6m  in  the current  quarter  (compared  to a  gain of  RM9.6m  in  the preceding  quarter)  and  a  28.0%  decline  in  associate  contributions  due  to  a  one-off  staff cost billed to an associate company in Nigeria. The stronger-than-expected revenue was largely  attributable  to:  i)  higher  uptimes  across  its  FPSO  fleet,  ii)  improved  uptime  and additional  new  tonnage  (Armada  Tuah  107,  Armada  Tuah  108,  Armada  Tuah  301  and Armada Tuah 302) in its OSV business, and iii) a higher revenue contribution from its T&I business  due  to  its  LukOil  contract  and additional  charter  of  the  Armada  Installer  with Momentum Engineering.
 
Maintain  BUY.  All  in,  we  are  maintaining  a  BUY  recommendation  on  Bumi  Armada  in anticipation  of  at  least  two  more  FPSO  contract  wins  next  year,  and  more  non-FPSO contracts. Our FV for the stock remains unchanged at RM4.35 based on our sum-of-parts valuation. It  implies  a  23.5x  PE  over  its FY13  earnings,  which  we  deem  fair  given  that it deserves a premium valuation, as over 70% of its business provides recurring income and constant cash flow.

Armada  Sterling  ready  to  take  on  the  Indian  Ocean.  We  also  recently  visited Bumi Armada's FPSO, the USD360m Armada Sterling (see Figure 1), which is now in  the Keppel shipyard in Singapore. The visit was hosted  by Jonathan  Duckett, Bumi Armada's senior vice-president of corporate planning,  and  was  attended by  a  combination  of  sell-side  analysts  and  fund  managers.  To  recap,  the  Armada  Sterling  is  one  of  Bumi Armada's five FPSO vessels that will serve ONGC in India on the D1 marginal field located 200km offshore from Mumbai. The contract, worth USD620m (RM1.9bn) over seven years,  comes with the option of annual extensions of up to six years. We remain upbeat on the prospects of the company to secure more projects in India moving forward as it has managed to complete this project ahead of time despite experiencing technical challenges along the way.

More  FPSO  contracts  in  the  pipeline.  Bumi  Armada  is  tendering  for  six  more  FPSO  contracts  (two  in Malaysia and one each in India, Nigeria, Indonesia and the North Sea) and contract awards have been weak YTD.  The  slower-than-expected  contract  rollouts  are  probably  due  to  tighter  financing  in  the  global  market which  made  many  customers  adopt  a  'wait and see' attitude this year. Nonetheless, management remains upbeat and looks forward to securing some FPSO contracts (with a higher probability in Asia) very soon as FPSOs  are still  one  of  the most  effective  solutions  in  the oil  &  gas sector. We  opine  that Bumi  Armada  still stands a chance to secure awards from India's Cluster 7, Malaysia's Belud and Indonesia's Madura this year while the others jobs will most likely be awarded only next year.

OSV  market  remains  stable.  Utilization  rates  for  its  offshore  support  vessels  remain  strong  at  87%  this quarter, compared to 82% in the preceding quarter, and this contributed to an increase in revenue q-o-q and y-o-y.  Its  management  added  in  a  conference  call  yesterday  that  charter  rates  are  expected  to  strengthen, especially for assets which are good in quality. We understand that charter rates vary in different regions, with Brazil having the highest rates (close to USD3 per bhp) followed by Africa (USD2.2-2.3 per bhp) and Malaysia (USD2 per bhp).

Orderbook  remains  strong  at  RM7.3bn  with  optional  extentions  worth  RM3.2bn.  As  at  30  Sept,  Bumi Armada's orderbook stood strong at RM7.3bn compared to RM7.6bn in the preceding quarter. The bulk of its orderbook  consists  of  contracts  for  its  FPSO  business  (62%)  followed  by  OSV  (16%)  and  T&I  (22%) businesses.  The  total  optional  extension  period  orderbook  remained  the  same  compared  to  the  preceding quarter at RM3.2bn.

Source: OSK