- We maintain our BUY call on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM4.65/share, which implies an FY13F PE of 23x. 

- Bumi Armada has acquired and taken delivery of a Very Large Crude Carrier (VLCC) known as MT Osprey for US$29mil (RM88mil) from Samoco 1233 Trust. The vessel was built in 1999 by Sumitomo Heavy Industries, Japan and has a capacity of of 160,279 gross tonne. 

- We understand that the hull of this VLCC, which can accommodate a storage capacity of over 1 million barrels of oil, is earmarked for conversion into a floating, production, storage and offloading (FPSO) vessel for large projects in West Africa.

- As a comparison, the group's second FPSO Armada Perdana, which was converted back in 2009, has a production capacity of 40,000 barrels per day (bpd) and storage capacity of 1.1 million barrels. This vessel is operating for ENI's Oyo field in Nigerias for a firm 5-year period plus 5 annual extensions. Meanwhile, Armada Sterling, which cost US$360mil and is being converted at Keppel Shipyard for later deployment in ONGC's D1 marginal field, has a storage capacity of 580,000 barrels but a higher production capacity of 50,000 bpd.

- We understand that the group undertook this pre-emptive acquisition to secure the hull first before securing a new FPSO contract as a strategy to take advantage of lower prices of old tankers amidst weak charter rates currently.

- This also means that the group is optimistic about securing fresh FPSO contracts soon. The group expects four FPSO contracts to be awarded soon, which we believe includes ONGC's Cluster 7 marginal field in India, Indonesia's Madura field, Afren's Okoro block off Nigeria and ENI's OML field of Nigeria. 

- As such, this development reaffirms our unchanged FY13F-FY14F net profits, which assume two fresh FPSO annually. This is further supported by the group's order book of RM10.5bil (including optional extensions worth RM3.2bil), which represents a healthy 4.1x FY13F revenue.

- We continue to like the stock due to:- (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 FY13F PE of 20x compared with SapuraCrest Petroleum's peak of 29x in 2007.

Source: AmeSecurities