Within  expectations.  Bumi  Armada  registered  FY12  revenue  of  RM1.7bn  (+7.5%  y-o-y, +3.5% q-o-q) and earnings of RM385.8m (+7.3% y-o-y, +14.9% q-o-q) due to an increase in revenue in its floating, production, storage and offloading (FPSO) (+17.5% y-o-y, -2.1% q-o-q),  offshore support  vessel  (OSV)  (14.3%  y-o-y,  +6.7% q-o-q)  and  transportation  and installation  (T&I)  businesses  (+60.3%  y-o-y,  +8.3%  q-o-q).  Its  earnings  grew  significantly on the back of the increase in activity across all its business divisions, despite the absence of contracts in its FPSO and OFD business. EBITDA margins improved by 60 bps as there were  some  changes  to  the  company's  deprecation  policies  (some  vessels  are  now depreciated  over  30  years  compared  to  25  years  previously,  a  standard  practice  among global vessel owners), which resulted in lower-than-expected depreciation expenses.

Positive outlook in 2013. In the analyst briefing held by its management immediately after the  release  of  its  results,  we  noted  that  2012  was  a  dry  year  for  the  FPSO  business globally. To recap, the company did not secure any FPSO contracts in 2012, which led to a series  of  earnings  downgrades  by  consensus  last  August.  2013  will  be  better  for  Bumi Armada due to three reasons: i) the oil price is expected to remain above USD100/barrel in 2013 and 2014,  which is positive  for  exploration and production activities  ii)  the  low  steel
price  is  a  positive  for  new  builds  and  new  projects,  and  iii)  the  long-term  demand  for FPSOs  globally  will  be  robust.  We  are  projecting  another  FPSO  contract  win  for  Bumi Armada  this  year,  as  it  is  a  frontrunner  for  contracts  in Malaysia's Belud and Indonesia's Madura,  which  are  set  to  be  announced  by  2Q13.  It  secured  its  first  contract  of  the  yearlast week, with ONGC.

Positive  outlook  for  FPSO  business  in  2013. We believe that 2013 will be a good year for  Bumi  Armada  with  six  FPSO  tenders  being  reviewed  concurrently.  Our  view  is supported  by  oil  prices,  which  will  likely  remain  above  USD100/barrel  in  2013  and  2014. While competition may be steep, we are confident that Bumi Armada could secure at least one  more contract this year (Malaysia's Belud or Indonesia's Madura) given its technical competence  and  operational  excellence  in  its  previous  contracts.  Its  management highlighted  that  they  are  also  looking  into  more  complex  and  technically-challenging projects  in  the  North  Sea,  African  and  South  American  region  where  barriers  of  entry  are high due to the deeper and harsher environment for oil & gas activities. 

OSV  business  to  remain  strong.  Utilization  rates  for Bumi Armada's OSV business are expected to be sustainable above 80% in 2013 (87% in 4Q12 for fully-owned vessels, 80% in 4Q12 if we include vessels held by jointly-controlled entities) as the company maintains a young  fleet  of  vessels.  Its  management  added  that  the  company  intends  to  enhance  its offerings to offer deepwater vessels, for which charter rates tend to be higher.

OFD  contract  an upside  to our forecast. 2012 has been a dry year for its OFD division, due to Petronas' slower-than-expected contract awards for marginal oilfields. Nonetheless, we  retain  the  view  that  Bumi  Armada  is  a  strong  contender  for  a  marginal  oilfield  award given  its  technical  expertise  in  converting  and  operating  FPSOs  as  well  as  its  strong balance  sheet.  This  could  be  an  upside  to  our  earnings  forecast  as  we  have  not  imputed any contract award for its OFD business in our financial model.

Gas  solutions  in  the  making.  Its  management  added  that  Bumi  Armada  is  currently investing  in  research  and  development  efforts  to  provide  gas  solutions  such  as  floating, storage  and  regassification  units  (FSRU)  and  floating  liquefied  natural  gas  (FLNG)  to enhance  its  offerings.  From  our  channel  checks,  we  understand  that  FLNG  projects  are expected to be worth over USD60bn for the next decade. While technology and manpower may be an issue, Bumi Armada intends to leverage on its existing capabilities and acquire additional skills for this venture.

Orderbook  remains  healthy.  Its  earnings  visibility  remains  healthy,  supported  by  the group's strong orderbook. As at 31 Dec 2012, the group's firm contract period orderbook stood  at  RM7.0bn  but  it  should  swell  to  slightly  above  RM9.2bn  if  we  were  to  include  its recent  FPSO  award  in  India.  It  also  has  some  RM4.7bn  in  its  optional  extension  period orderbook over the entire option periods.

Maintain  BUY.  All  in,  we  are  positive  on  the company's prospects in FY13,  underpinned by i) improved demand in the FPSO market globally, ii) steady utilization rates for its  OSV business, iii) its business expansion plans to offer deepwater services, and iv) a potential upside from its floating gas solutions, a new business built on existing competencies. We are  reiterating  a  BUY  recommendation  on  the  stock  with  the  FV  unchanged  at  RM4.35, based on our sum-of-parts valuation.

Source: OSK