Bumi Armada Bhd
(Dec 12, RM1.02)
Maintain “add” with a target price of RM2.35: Bumi Armada closes financial year 2014 (FY14) with the finalisation of the Madura floating production, storage and offloading (FPSO) contract, which takes the company’s order book to a new high of an estimated RM23.4 billion.

Madura also marks Bumi Armada’s second FPSO contract this year and expands the company’s FPSO fleet to nine vessels, its biggest ever. Management has now set its sights on four additional FPSO contracts.

Our target price drops as we now value the stock at 19.5 times calendar year 2016 price-earnings ratio (PER), still at a 30% premium to our revised target market PER of 15 times, from 16.3 times previously. We maintain our “add” call with a strong FPSO contract pipeline as potential rerating catalyst.

Bumi Armada announced earlier that it had signed the Madura FPSO contract with Husky-CNOOC. The contract is for a firm 10-year, US$1.18 billion (RM4.11 billion) charter, with five annual extension options worth US$147 million. The FPSO vessel is expected to commence operations at the Madura BD field in Indonesia in the fourth quarter of FY16. The contract was secured by 50%-owned unit PT Armada Gema Nusantara on Aug 19.

We are pleased that Bumi Armada has finalised the Madura contract after three extensions.

Madura is Bumi Armada’s ninth FPSO contract and the second secured this year after the US$2.9 billion 1506 contract awarded in March. The 1506 contract is the company’s biggest ever. Armed with nine FPSO vessels, the company remains the world’s fifth largest FPSO operator by fleet size.

Based on Bumi Armada’s 50% stake, Madura gives the company’s order book a 9% boost to hit a new record of an estimated RM23.4 billion, second only to SapuraKencana Petroleum Bhd’s RM26.2 billion order book.

Bumi Armada also has extension options worth RM11.8 billion. The company is currently bidding for four FPSO contracts — one each in Ghana, Nigeria, Namibia and Angola.

Madura appears to be outgoing chief executive officer (CEO) Hassan Basma’s last contract before his resignation takes effect on Jan 1. He will stay on as a consultant, working alongside acting CEO Chan Chee Beng.

Our suggestion is to take advantage of the share price correction and accumulate the shares. Despite the current oil price weakness, we continue to like Bumi Armada for its solid earnings visibility given the long-term nature of FPSO contracts, and its good leverage in the international market. All nine FPSO contracts are outside Malaysia and have no oil price connections. — CIMB Research, Dec 11

This article first appeared in The Edge Financial Daily, on December 15, 2014.