Bumi Armada’s pipeline overflowing with projects

PETALING JAYA: Bumi Armada Bhd, which clinched a US$1.2 billion (RM3.8 billion) floating production storage and offloading vessel (FPSO) contract on Tuesday, has submitted four tenders involving capital expenditure of up to US$3 billion in Indonesia, Namibia, Ghana, and Mexico.
AmResearch said the company is also working on six additional projects which could potentially cost up to US$10 billion, including a US$2 billion floating liquefied natural gas project at Equatorial Guinea in Central Africa.
"This increasingly visible project pipeline underpins the stock's re-rating catalyst," its analyst Alex Goh said in his report yesterday.
To recap, Bumi Armada and its partner PT Armada Gema Nusantara received a letter of intent (LOI) from Husky-CNOOC Madura Ltd to supply an FPSO for the Madura BD field, 65km east of Surabaya and 16km south of Madura Island, Indonesia.
The US$1.18 billion (RM3.76 billion) contract is for a fixed duration of 10 years with five annual extensions worth an additional US$147 million (RM469 million) in aggregate.
The letter of intent is to be finalised and signed within 45 days from Aug, 8 2014.
This will be the eighth FPSO under the group's expanding fleet, and will cost around US$400 million, much smaller than the recently awarded Angolan FPSO (which will cost US$1.5 billion) and the US$1 billion Kraken project.
"With the award of the Madura FPSO firm charter, the group's firm order book has surged by 15% from RM22.7 billion to RM26 billion, and the total order book (including existing options) by 12% to RM35.4 billion, which is above SapuraKencana's current RM25 billion," Goh said.
However, he said the impact of the Madura FPSO will not have a significant impact on the group's net gearing as most of the vessel's debt will not be consolidated under equity accounting.
"Based on our estimates, Bumi Armada's net gearing of 0.7 times as at Dec 31, 2013 could rise to 1.4 times by end-FY15F from the Kraken and Angolan FPSO.
"Hence, the rights issue, which could raise proceeds of RM2.2 billion (assuming rights price of RM1.52 a share) and mitigate the rising gearing levels, will widen the group's exciting playing field of huge multiple projects globally.
"Bumi Armada now trades at an attractive FY15F price-to-earnings (PE) of 16 times which is 20% below its peers' 20 times," he said.
AmResearch maintained its "buy" recommendation on Bumi Armada but with a lower sum-of-parts (SOP) based fair value of RM4.95 a share from an earlier RM5.25 a share.
This implies an FY15F PE of 23 times, which is a 15% premium to oil & gas stocks with market valuations above RM1 billion.
"We have lowered our FY14F-FY16F earnings by 3%-4% as the equity stake of 49.9% for the Madura FPSO vessel charter is lower than our earlier assumption of 100%," Goh said.
The Madura FPSO now accounts for 5% of its SOP and contributes minimally in FY14F-FY15F due to the group's recently revised accounting methodology for earnings recognition from operating to finance lease for its FPSO vessels.