Bumi  Armada  has  landed  a  FPSO  contract  LOI  from  eni  Angola  SpA, with  work  to  begin  immediately.  The  contract  has  a  20-year  duration, inclusive  of  extension  period  options.  The  company  also  announced the  undertaking  of  a  USD750m  loan  to  part  finance  its  Armada  Kraken FPSO  project.  Maintain  BUY  with  a  new  SOP-based  MYR4.45  FV  (from MYR4.35).    

Lands  MYR9.5bn  Angola  floating,  production,  storage  and offloading  (FPSO)  letter  of  intent  (LOI).  A  Bumi  Armada-led consortium  has  received  a  USD2.9bn  (MYR9.5bn)  LOI  from  eni  Angola SpA  that  entails  the  chartering,  operation  and  maintenance  of  a  FPSO that  will  be  deployed  to  Block  15/06,  East  Hub.  This  block  is  located offshore  Angola  and  is  expected  to  hit  first  oil  by  Oct  2016.  The consortium  is  authorised  to  start  engineering  and  procurement  work  on the  FPSO  immediately  and  this  unit  is  expected  to  start  contributing  to the bottomline in FY14. The contract, when executed, will be for a period of 20 years, inclusive of option extensions.  

More capital-raising is expected in the future. At the same time, Bumi Armada  has  announced  the  undertaking  of  a  syndicated  bridging  loan amounting  to  MYRUSD750m  to  part-finance  and  reimburse  all  costs related  to  Armada  Kraken,  an  FPSO  contract  awarded  by  EnQuest Heather  Ltd  in  late  Dec  2013.  More  capital-raising  is  expected  as  the group recently announced its intention to raise approximately MYR5bn to finance  its  operations.  Though  daunting,  Bumi  Armada  also  indicated management’s commitment in growing the business.  

Maintain  BUY  with  new  SOP-based  MYR4.45  FV.  After  a  revamp  to our model, we revise our FY14F/15F earnings downwards by 20%/11%. We derive our SOP-based FV of MYR4.45 (from MYR4.35) by applying: i) a target FY14 P/E of 20x to its offshore support vessel (OSV) division – a premium over other OSV stocks in our oil & gas universe, ii) 18x to its transport & installation division (T&I) – similar to comparable peers, and iii)  the  DCF  method  to  value  its  FPSO  division,  to  which  we  derive  a value  of  MYR2.35/share. We maintain  BUY  on  the  stock  as  we  believe demand  for  FPSOs  remains  healthy.  Included  in  our  numbers  is  our assumption  that  Bumi  Armada  is  able  to  secure  at  least  two  FPSO contracts per year.

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Bumi  Armada  is  a  one-stop  vessel  solutions  provider  via  its  floating  production,  storage  and  offloading  (FPSO)  systems,  transport  & installation (T&I), and oilfield services, procurement and construction capabilities.

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Source: RHB