Bumi Armada announced yesterday that it has received a letter of intent (LOI) for the provision of a floating production, storage and offloading(FPSO) vessel for the Madura BD field from Husky-CNOOC MaduraLimited. We make no changes to our earnings estimate at this junctureas we seek further clarification with management. Maintain BUY, with our SOP-based FV of MYR4.54. 

Salient details.The consortium of Bumi Armada and PT Gema MarineServices will be supplying an FPSO vessel to Husky-CNOOC Madura for the development of the Madura BD field. The contract is valued at USD1.18bn (MYR3.76bn) for a fixed period of 10 years with options of five annual extensions worth an aggregate value of USD147m (MYR469m). We expect capex for the conversion to cost around USD350m-450m. 

FPSO Armada Madura. The FPSO will be deployed in Madura BD field with first production slated for 2QFY16. FPSO Armada Madura will be the ninth FPSO under Bumi Armada’s stable, making it the fourth-largest FPSO player worldwide. On top of the FPSO segment, Bumi Armada also owns more than 50 OSVs and is still undergoing fleet rejuvenation. 

Positive for Bumi Armada. Management guided that this FPSO will be on a financial lease model, we make no changes to our earnings forecast at this juncture. We continue to like Bumi Armada given: i) itslong-term FPSO contract, which should provide long-term earnings visibility, ii) continuous rejuvenation and expansion of its OSV fleet, which may provide a potential earnings boost, and iii) its established global presence in five continents. Our SOP-based FV of MYR4.54 implies a FY15 P/E of 22x, in line with the big-cap names under our universe that are currently trading at 14-29x.

Source: RHB