Bumi Armada announced on Bursa Malaysia yesterday that its jointly controlled entity, SP Armada Oil Exploration had on 16 Feb 2013 received a notification of award from Oil and Natural Gas Corporation Limited (ONGC) of India, for the charter hiring of one floating, production, storage and offloading vessel (FPSO) for the Cluster-7 field in India. The contract is for a fixed period of 9 years, valued at USD740m with an optional extension period of 7 years, valued at USD340m.
Background on Bumi Armada’s partner and the project. SP Armada Oil Exploration is a 49.998 : 50.02 joint venture between Bumi Armada and Shapoorji Pallonji and Company Limited of India. ONGC on the other hand is India's state owned oil company listed on the Bombay Stock Exchange and the National Stock Exchange of India. The FPSO will be owned and operated by SP Armada in the ONGC Cluster-7 field located about 210km off the western coast of Mumbai, India. The FPSO will have minimum storage of 510,000 barrels of oil and delivery is expected to be within 21 months from the date of award.
Dry spell ends but no surprises here. As highlighted in our report in Nov 2012, the contract award was not a surprise for us as we opined that Bumi Armada stood a high chance of securing this contract although the award was slightly slower than we originally anticipated. The award underscores ONGC’s trust in Bumi Armada’s delivery model, following from its previous FPSO contract for the Armada Sterling, which is currently working in ONGC’s D1 marginal field located 200km offshore from Mumbai.
Orderbook to swell in excess of RM9bn. With its sixth FPSO award, we believe that its firm contract period orderbook should swell to some RM9.5bn, which is 30% higher than its orderbook as at end of 2012. While the contract is likely to enhance the company’s net profit by RM40m-RM50m, we are making no changes to our FY13 earnings estimate as we have previously factored in the potential contribution from two FPSO contracts in 2013. As the value of this contract is lower than what we imputed in our earnings model, we have adjusted our earnings model accordingly and assumed a larger contract value for the other anticipated FPSO contract.
More to come this year? You bet! We continue to like the stock for its good earnings visibility given the long-term nature of its FPSO contracts. Given that the lackluster performance of Bumi Armada’s share price in the 2012, we advocate investors to stay invested in the stock as the company is likely to secure more awards this year such as Malaysia’s Belud and Indonesia’s Madura contracts, which may be a catalyst for the stock. We are thereby retaining our BUY recommendation with an unchanged fair value of RM4.35, based on our sum-of-parts valuation pegged to the company’s 12 months forward EPS.
Source: OSK
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