Bumi Armada - Unplanned repairs, no performance bonus, weaker US$ BUY

- We maintain our BUY call on Bumi Armada, but with a lower sum-of-parts-based fair value of RM4.65/share (vs. RM5.05/share earlier), which implies an FY13F PE of 23x vs. the oil & gas sector’s 17x. 

- We have lowered FY12F-FY14F earnings by 11%-17% largely due to a 2ppt-reduction in the margins for the floating production storage and offloading (FPSO) division and a 3ppt-cut in the offshore support vessel (OSV) segment. 

- The group’s 1QFY12 net profit of RM90mil came in below expectations – making up 16% of our earlier FY12F net profit and 19% of street estimate’s RM485mil. QoQ, the group’s 1QFY12 net profit declined 28% due to:- (1) weakening of US$ vs. the ringgit by 4% on the group’s mostly US$-derived revenue, and (2) absence of annual performance bonus enjoyed in 4QFY11 by the Afren FPSO contract for Armada Perkasa in Nigeria, 3) Unplanned maintenance for two OSVsArmada Firman 2 & 3 in Nigeria, and 4) absence of the contributions from the completed Sepat floating storage offloading installation contract. 

- The order book has risen slightly to RM10.1bil (including optional extensions worth RM3.1bil) from RM9.9bil in the previous quarter largely due to fresh charters secured for the OSV division. Including the US$200mil (RM629mil) for the LukOil installation contract awarded in April this year, the order book would be even larger at RM10.7bil, representing 5.1x FY12F revenue. 

- This is likely to further increase as the group is currently bidding for five FPSO contracts in Malaysia, Indonesia, India, Vietnam and Africa. We understand that while only one FPSO contract was awarded globally year-to-date, the pace of awards is expected to gain momentum in 2H2012, similar to the rollout trend last year.

- We understand that the Belud FPSO contract could be retendered. Likewise, the contract for the St Joseph chemical enhanced oil recovery (CEOR) could be re-tendered,  but Bumi Armada and Delcom-Emas Offshore are currently still the only two bidders. Besides FPSOs, the group is also tendering for T&I jobs in the Caspian, Nigeria, Angola and Australia. Amid tightening vessel utilisation, the group has embarked on its ‘Steel on Water 2’ vessel expansion programme via purchase and construction activities, but on a more gradual process compared to the earlier phase 1. The two anchor handling tug supply vessels, Armada Tuah 107 & 108, recently acquired from financially troubled Sanko Steamship, have been chartered out to 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 20x compared with SapuraCrest Petroleum’s peak of 29x in 2007.  

Source: AmeSecurities