Bumi Armada - 4 more MPSVs for Newbuild Programme 2 BUY

- We maintain our BUY call on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM4.65/share, which implies an FY13F PE of 23x vs. the oil & gas sector’s 17x.

- Bumi Armada has issued a letter of intent to Nam Cheong Dockyard Sdn Bhd to build four Multi-Purpose Platform Support Vessels (MPSV) at a cost of US$130mil (RM411mil) (excluding owner furnished equipment) with an option for another four units. 

- The four vessels, which are expected to be delivered in 2QFY14, is part of the group’s ‘Steel on Water 2’ newbuild programme, the second phase of the earlier Steel on Water 1 which fully delivered 20 new vessels back in 2010. 

- Including the MPSV being built by the end of this year for Shell’s Gemusut-Kakap project, there will be five such vessels of this range which will be added to the group’s current fleet of 47 offshore support vessels. 

- We understand that charter rates are attractive (which translate into project IRRs of 18%-20%) for these MPSVs, which offer multiple services such as dynamic positioning (DP2), fire-fighting, cranes, specialised equipment, moon pools, accommodation and helipads. 

- This development is not a surprise as management has revealed such a strategy in past analyst briefings. Hence, we expect the group’s commitments to purchase and/or build new vessels to increase against the backdrop  of additional requirements for specialised offshore support vessels in deeper and more challenging waters globally.

- Management has indicated that the group is prepared to raise its gross gearing levels from 0.8x (with a gross debt of RM2.9bil) currently to 1.5x-2.0x. While this could mean capital expenditures of over RM4bil (which is likely to be largely earmarked for floating, production, storage and offloading vessels and marginal field projects), we expect the newbuild programme for offshore support vessels to be phased gradually.

- Given that the 4 MPSV will only be ready towards 2HFY14, we maintain FY12F-FY14F net profits. We continue to like the stock due to:- (1) Likelihood of new floating production storage and offloading (FPSO) 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 FY13F PE of 21x compared with SapuraCrest Petroleum’s peak of 29x in 2007.  

Source: AmeSecurities