Background on Bumi Armada's partner and the project. SP Armada Oil Exploration is a 49.998  :  50.02  joint  venture  between  Bumi Armada  and  Shapoorji  Pallonji  and  Company Limited of India. ONGC on the other hand is India's state owned oil company listed on the Bombay  Stock  Exchange  and  the  National  Stock  Exchange  of  India.  The  FPSO  will  be owned and operated by SP Armada in the ONGC Cluster-7 field located about 210km off the  western  coast  of  Mumbai,  India.  The  FPSO  will  have  minimum  storage  of  510,000 barrels of oil and delivery is expected to be within 21 months from the date of award.

Dry  spell  ends  but  no  surprises  here.  As  highlighted  in  our  report  in  Nov  2012,  the contract  award  was  not  a  surprise  for  us  as  we  opined  that  Bumi  Armada  stood  a  high chance of securing this contract although the  award was slightly slower than we originally anticipated. The award underscores ONGC's trust in Bumi Armada's delivery model, following  from  its  previous  FPSO  contract  for  the  Armada  Sterling,  which  is  currently working in ONGC's D1 marginal field located 200km offshore from Mumbai.  

Orderbook  to  swell  in excess  of  RM9bn. With its sixth FPSO award, we believe that its firm contract period orderbook should swell to some RM9.5bn, which is 30% higher than its orderbook  as  at  end  of  2012.  While  the  contract  is  likely  to  enhance the company's net profit by RM40m-RM50m, we are making no changes to our FY13 earnings estimate as we have previously factored in the potential contribution from two FPSO contracts in 2013. As the  value  of  this  contract  is  lower  than  what  we  imputed  in  our  earnings  model,  we  have adjusted our earnings model accordingly and assumed a larger contract value for the other anticipated FPSO contract.

More  to  come  this  year?  You  bet!  We  continue  to  like  the  stock  for  its  good  earnings visibility  given  the  long-term  nature  of  its  FPSO  contracts.  Given  that  the  lackluster performance  of Bumi Armada's share price in the 2012, we advocate investors to stay invested  in  the  stock  as  the  company  is  likely  to  secure  more  awards  this  year  such  as Malaysia's Belud and Indonesia's Madura contracts, which may be a catalyst for the stock. We  are  thereby  retaining  our  BUY  recommendation  with  an  unchanged  fair  value  of RM4.35, based on our sum-of-parts valuation pegged to the company's 12 months forward EPS.