Bumi Armada - First platform supply vessel contract from Petrobras BUY

Stock Name: ARMADA
Company Name: BUMI ARMADA BERHAD

Research House: AMMB

Price Call: BUY

Target Price: 5.05

- We maintain our BUY call on Bumi Armada with an unchangedsum-of-parts-based fair value of RM5.05/share, which implies an FY12F PE of26x.

- Bumi Armada has secured its first platform supply vessel(PSV) charter contract from Petr''leo Brasileiro S.A. (Petrobras) valued atRM115mil for its Armada Tuah 301. The charter, over four years with an optionto extend for another four years, will commence in 2QFY12.This 75 metre-longvessel, which weighs 3,000 dead weight tonnes, offers multifunctional roles intransport of cargo, personnel transfer and rescue operations between platforms.It will accompany the group's two anchor handling tug supply vessels Armada Tuah102 and 104, which are currently operating offshore Brazil.

- The Armada Tuah 301 charter value is 26% lower than thecharter for the group's 12,000bhp anchor handling tug supply vessel (AHTS)Armada Tuah 102 which was also secured from Petrobras in January this year.This is largely because Armada Tuah 301 does not offer anchor handling serviceswith require more expensive towing equipment. 

- We are positive that the group continues to secure freshmarine charters with its vessel utilisation rate currently at near 100%. Thisis in line with our FY12F-FY14F vessel utilisation assumptions of 95%-100%.Hence, we maintain our FY12F-FY14F earnings for now.

- The group is on the prowl to acquire additional platformsupply vessels and accommodation work boats given its tightening assetutilisation rates. This also supports our view that marine charter operationsfor the industry is reaching an inflection point which will lead to a significantincrease in charter rates in 2H2012 (See our sector report on 16 February 2012).Includingrenewable options of RM3.1bil to the group's firm orders of RM6.9bil, the group'sorder book of RM9.9bil represents 4.3x FY12F revenue. This is likely toincrease as the group is currently bidding for six FPSO contracts in Malaysia,Indonesia, India and West Africa. 

- We continue to like the stock due to the followingre-rating catalysts:- (1)Rising likelihood of new floating production storageand offloading vessel contracts as oil & gas developments reigniteglobally, (2) tightening vessel utilisation rates, and (3) premium scarcity foroil & gas stocks with large market capitalisation.

- The stock currently trades at an attractive FY12F PE of23x compared with SapuraCrest Petroleum's peak of 29x in 2007.

Source: AmeSecurities