Bumi Armada’s earnings visibility good

by **Cals** Tue 03 Sep 2013, 14:43

Bumi Armada’s earnings visibility good
Business & Markets 2013
Written by CIMB Research
Tuesday, 03 September 2013 13:47

Bumi Armada Bhd
(Sept 2, RM3.91)
Maintain outperform at RM3.90 with a target price of RM5.05: Bumi Armada’s new joint venture (JV) with Dutch multinational Fugro — a specialist in geo-science services — marks its maiden foray into the well service market and the first step towards securing a marginal field contract.

We continue to value the stock at 21.8 times 2014 calendar year price-earnings ratio (PER), a 40% premium over our market target of 15.6 times, but still within the historical PER range of oil and gas big caps. Bumi Armada’s long-term floating, production, storage and offloading (FPSO) contracts should support a three-year earnings per share compound annual growth rate of 18.3%. Its strong FPSO contract pipeline is a rerating catalyst that underpins our unchanged “outperform” call.

Bumi Armada said in a press release that it had formed a 51:49 JV with Fugro to target jobs in the well service market.

Meanwhile, online industry publication Upstream has reported that UK-based EnQuest aims to sign a letter of intent with either Bumi Armada or Norway’s Teekay for work on the Kraken development in the UK’s North Sea in early October. The competition between Bumi Armada and Teekay is too close to call.

We are excited about the JV as it marks Bumi Armada’s maiden venture into the expanding subsea market. We also see it as the company’s first step towards direct involvement in a marginal field development after completing FPSO work with London-based Petrofac Ltd on the latter’s Sepat marginal field in 2012 financial year.

With six FPSO contracts under its belt, Bumi Armada is actively bidding for 12 more that are concentrated in Asia, Africa and South America. We remain positive on its chances of securing the US$1 billion (RM3.28 billion) Kraken contract. If clinched, it would mark the company’s first undertaking in the North Sea. Current order book and extension options are worth RM7.5 billion and RM4.3 billion, respectively.

Stay invested. Bumi Armada’s earnings visibility is good given the long-term nature of FPSO contracts. Their primary terms will last till 2022, but extensions could stretch until 2029. — CIMB Research, Aug 30

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This article first appeared in The Edge Financial Daily, on September 03, 2013.