Bumi Armada - Up for India’s Cluster 7 FPSO soon

BUY

Fair Value: RM4.65

• 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. 
• The Edge Financial Daily reported that Bumi Armada and M3Nergy are the only two shortlisted bidders for the supply of a floating, production, storage and offloading (FPSO) contract to ONGC’s Cluster 7 marginal field development off India’s west coast. 
• This development, which was earlier reported by Upstream, is not a surprise as highlighted in our report last week. The FPSO is expected to have a liquid-handling capacity of 30,000 barrels per day, oil handling capacity of 26,500 bpd and a storage capacity of at least 510,000 barrels. The charter involves a primary nine-year period with a further seven annual extensions. 
• Six FPSO contractors submitted bids in April this year but the Indian players ABG Shipyard, Pipavav Shipyard, Mercator and Hind Offshore later dropped out of the tender as they did not meet the experience criteria. Bumi Armada is reported to have a joint-venture called SP Armada Oil Exploration Pte Ltd with India’s Shapoorji Pallonji & Co Ltd. 
• In our view, Bumi Armada is the likely winner for this bid, which will be announced soon, as the group had secured the D1 FPSO charter last year with Bombay-listed Forbes & Co. Based on the US$620mil 7-year D1 charter, which involve a processing capacity of 50,000 barrels per day and 580,000 barrels storage capacity, we estimate that the 9-year Cluster 7 charter could be valued up to US$800mil (RM2.5bil). But we maintain FY12F-FY14F earnings which already assumed an additional FPSO annually. 
• There are seven other FPSO jobs for which the group is also eyeing, including Malaysia’s delayed Belud project, Hoang Long Joint Operating Company’s Block 16 off Vietnam, Afren’s Okoro block off Nigeria and ENI’s OML field of Nigeria. Besides FPSO jobs, the group is also likely to be involved with Petra Energy and Coastal Energy, which had been awarded a marginal risk-service contract last month by Petronas for the Kapal, Banang and Meranti (KBM) fields off Peninsular Malaysia. 
• The only concern for now is further share disposals, with major shareholder Tan Sri Ananda Krishnan still owning an effective 42% of the stock and bumiputra shareholders an estimated 17%. But the stock currently trades at an attractive FY13F PE of 19x compared with SapuraCrest Petroleum’s peak of 29x in 2007.

Source: AmeSecurities