Bumi Armada - Enlarging multi-purpose fleet Buy

- We maintain our BUY call on Bumi Armada, with a lower sum-of-parts-based fair value of RM4.30/share (vs. RM4.60/share earlier), which implies an FY13F PE of 25x

- Bumi Armada has finally awarded a US$130mil (RM403mil) contract to Nam Cheong Dockyard Sdn Bhd to build 4 dynamic positioning (DP2) Multi-Purpose Platform Support Vessels under its 'Steel on Water 2' new-build programme. This contract, which excludes the value of owner- furnished equipment, follows the group's letter of intent to Nam Cheong back in June last year.

- Each MPSV, designed for diesel-electric propulsion, will be 88.8 metres in length, 5,000 deadweight metric tonnes of cargo capacity. They are built to Comfort Class, SPS Compliance, Oil Recovery, Fire Fighting Class 1 and enabled for a 100 metric tonne- heave compensated crane, helideck, remotely-operated vehicle facility and moon pool.

- All 4 MPSVs, which will be larger than the earlier one that was also awarded to Nam Cheong for the Shell GumusutKakap contract, will have DP2 capability to support offshore deep-water activities with multi-purpose functions of transporting cargo (such as fresh water, diesel, bulk cement, liquid mud, drilling chemicals and deck cargo), oil recovery and on standby/rescue work. Each MPSV will also have accommodation for a total of 60 personnel on board.

- The group has yet to secure any charter contract for these 4 MPSVs, which are expected to be delivered in late 2014 and earmarked for deepwater projects in Malaysia, Brazil or Africa.

- But we understand charter rates are attractive for these types of new-generation vessels, which are in strong demand compared to anchor-handling tug supply vessels below 10,000 brake horse power.

- We maintain Bumi Armada's FY13F-FY15F net profits on the unchanged assumption of 2 fresh floating, production, storage and offloading charters each year.

- 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. But for our oil & gas pick, we prefer SapuraKencana Petroleum, which has a larger order book, more transparent earnings growth momentum from its recent tender rig acquisitions from Seadrill and larger exposure to domestic oil & gas contract awards.

Source: AmeSecurities