Bumi Armada - Weak results but still expecting 2 new FPSOs

-  We maintain our BUY call on Bumi Armada, but with an unchanged sum-of-parts-based fair value of RM4.65/share which implies an FY13F PE of 23x. 

-  The group’s 1HFY12 results were below expectations – making up 39% of our FY12F net profit of RM468mil and 34% of street estimate’s RM539mil. But we maintain FY12FFY14F earnings for now, pending further newsflow on the award of new floating production storage and offloading (FPSO) contracts by the end of 3QFY12. 

-  Note that our FY12F-FY14F net profits are 13%-19% below consensus, as we have only assumed an average of one FPSO contract per year vs. the street’s two. 

-  The group’s 2QFY12 net profit was flat QoQ at RM92mil despite a 15% revenue increase to RM385mil, as the higher offshore support vessel (OSV) contributions from additional vessels were largely offset by lower margins from the transportation and installation (T&I) division, which recognised Armada Installer’s revenue from Petronas’ guaranteed charter days in Turkmenistan and early stage progress of LukOil. 

-  The order book has risen by 7% QoQ to RM10.8bil (including optional extensions worth RM3.2bil) from RM10.1bil in the previous quarter largely due to the US$200mil (RM629mil) for the LukOil installation contract and new OSV charters. This represents 4.2x FY13F revenue. 

-  This is likely to further increase as the group expects four FPSO contracts to be awarded over the next few months–Hoang Long Joint Operating Company’s Block 16 off Vietnam, ONGC’s Cluster 7 marginal field in India, Afren’s Okoro block off Nigeria and ENI’s OML field of Nigeria. There are seven other FPSO jobs for which the group is also eyeing, including Malaysia’s delayed Belud project.

-  We understand that while only four FPSO contracts were awarded globally year-to-date, management affirmed that the pace of awards is expected to regain momentum in 2H2012, similar to the rollout trend last year.

-  The group also expects fresh T&I contracts in Petrofac’s West Desaru, PTTEP’s Vietnam and more jobs from LukOil in Turkmenistan.

-  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 19x compared with SapuraCrest Petroleum’s peak of 29x in 2007.  

Source: AmeSecurities