Bumi Armada - Flat quarterly earnings but still hopeful for fresh FPSOs 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 unchanged FY13F PE of 23x. 

- The group’s 9MFY12 net profit of RM277mil (+18% YoY) was below expectations – accounting for 59% of our earlier FY12F net profit of RM468mil and 60% of street estimate’s RM463mil. Hence, we have cut FY12F net profit by 12% with the removal of a new floating production storage and offloading (FPSO) charter for this year in our assumptions, given the absence of any fresh charter since the beginning of this year. But we maintain FY13F-FY14F net profits on expectations of two fresh FPSO annually. As such, our fair value, pegged to FY13F earnings, remains intact.

- The group’s 3QFY12 revenue increased 20% QoQ to RM462mil due to:- (1) higher uptime and operation &maintenance revenue from the FPSO segment, (2) four additional anchor handling tug supply vessels and 5-ppt increase in vessel utilisation rate to 87%, and (3) higher completion of the US$200mil LukOil transportation and installation contract. 

- But 3QFY12 net profit was largely flat QoQ at RM95mil due to a quarterly variance of RM15mil foreign exchange losses/gains on receivables and derivatives, as there is a time-lag between sales and receipts over RM-denominated reporting periods. 

- The order book slid by 3% QoQ to RM10.5bil (including optional extensions worth RM3.2bil) from RM10.8bil due to insufficient fresh contracts to fully offset quarterly depletions. This still represents a healthy 4.1x FY13F revenue. 

- Management affirmed that the rollout for FPSO contracts globally has been slow since the beginning of the year, partly contributed by the ongoing European sovereign debt crisis and US ‘fiscal cliff’ concerns. There may be opportunities for merger and acquisition activities given that the tighter lending policies and absence of fresh jobs have adversely affected Bumi Armada’s competitors. 

- But the group expects more than three FPSO contracts to be awarded soon, which we believe includes ONGC’s Cluster 7 marginal field in India, Afren’s Okoro block off Nigeria and ENI’s OML field of Nigeria. 

- 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