Bumi Armada - ecuring continuation of Mexican charter Buy

-  We maintain our BUY call on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM5.05/share, which implies an FY12F PE of 26x.

-  The group has secured a fresh charter worth US$65mil (RM198mil) for its accommodation workboat, Armada Firman 3 from Mexico-based Tecnologias Relacionadas con Denergia y Servicious Especializados S.A. de C.V.

-  This 5-year charter, which has an option for an additional 5 year extension, is expected to be effective 7 May 2012. The vessel will provide accommodation and offshore support services to Mexico’s oil & gas fields.

-  The 75-metre long vessel, built in 2008 with Dynamic Positioning 2 capability, equipped with a 40-tonne single wire-line deck crane and is able to accommodate 218 people, was already operating on a long-term charter in Mexico. It is one of seven accommodation workboats in the group’s fleet of 43 offshore support vessels.

-  Armada Firman 3’s daily charter rate of US$163/bed is slightly higher than the previous charter and falls within the group’s range of US$83/bed-US$258/bed for this vessel segment. But this is still higher than the group’s average due to the higher rates for vessels operating in Mexico.

-  The extension of this charter is within our expectations, hence, we maintain our FY12F-FY14F earnings. Including renewable options of RM3.1bil to the group’s firm orders, the group’s total order book stands at RM10.5bil – which represents 4.6x FY12F revenue. This is likely to increase as the group is currently bidding for four FPSO contracts as well as marginal field concessions. 

-  Besides FPSO jobs, the group is on the prowl to acquire additional platform supply vessels and accommodation work boats given its tightening asset utilisation rates, almost at 100%. This also supports our view that marine charter operations for the industry are reaching an inflection point, which will lead to a significant increase in charter rates in 2H2012. 

-  Despite the possibility of further selling pressure from bumiputra shareholders- who still retain an estimated 17% stake in the group, we continue to like the stock due to the following re-rating catalysts:- (1)Likelihood of new floating production storage and offloading 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 FY12F PE of 21x compared with SapuraCrest Petroleum’s peak of 29x in 2007.

Source: AmeSecurities