Bumi Armada Bhd
(July 8, RM1.06)
Maintain add with a target price of RM1.50: We learned from Bumi Armada’s management on Wednesday that its venture into the floating liquefied natural gas (FLNG) business is going well with the maiden project on track.

An LNG carrier is already undergoing conversion. The carrier is needed to execute the  company’s US$300 million (RM1.14 billion) contract to supply a floating storage unit (FSU) to ElectroGas Malta.

The floating production, storage and offloading (FPSO) business remains the company’s backbone, but the FLNG business looks promising and is off to a good start.

We continue to value the stock at 15 times calendar year 2016 (CY16) price-earnings ratio (PER), at parity with our target market PER. We maintain our “add” call, with the FLNG venture and a strong FPSO contract pipeline as potential rerating catalysts.

Management said an LNG carrier has been acquired and is now undergoing conversion work at a Singapore yard. The FSU is expected to be delivered to ElectroGas in the second or third quarter of 2016.

To recap, Bumi Armada has entered into contracts with ElectroGas for the conversion, supply, operation and maintenance of an FSU for a project related to the construction and operation of an LNG-receiving terminal in Delimara, Malta.

The effective date of the contracts is April 13, 2015 for a firm period of 18 years and two months. The estimated value of the contracts is approximately US$300 million.

We are encouraged that the project is on track. With an average contract value of RM61 million per annum, the project is not large but it is a good start for Bumi Armada’s new and fourth business — FLNG.

Other businesses are FPSO, offshore support vessels and transport and installation. The project also gives the company a new long-term income stream to complement its existing long-term FPSO contracts.

Moreover, it chips in to its order book’s estimated record high of RM26.7 billion, excluding extension options worth RM13.3 billion, also a new record. FLNG makes up 4% of the order book.

On the FPSO front, management is pursuing two potential projects in West Africa to add to its current portfolio of nine projects, which places the company at the fifth spot on the global FPSO league table by fleet size.

We advise investors to accumulate the stock. — CIMB Research, July 7

This article first appeared in The Edge Financial Daily, on July 9, 2015.