Bumi Armada Bhd (Jan 17, RM4.15)
Maintain buy at RM4.11 with target price of RM4.48: We are delighted with this development as it again serves as a testament to Bumi Armada's competitive strength in bidding for international jobs and has proved its investment in high capability offshore support vessels (OSV) was the right one. With the ramp-up of the pre-salt oilfield developments by Petrobras, we could see Bumi Armada diversify its earnings base into Brazil where demand across the oil and gas (O&G) products spectrum is getting stronger.
We believe Bumi Armada is one of the definite candidates to benefit the most from the domestic O&G capital expenditure upcycle and expect the company to secure more contracts in FY12 to replenish its current order book of about RM10 billion.
We have identified the company as the next candidate for a Petroliam Nasional Bhd risk sharing contract (RSC) play with four or five RSCs expected to be dished out in 2012. While the company is bidding for four floating production, storage and offloading (FPSO) contracts, our earnings estimates incorporate an additional two FPSO contract wins in FY12.
To recap, at the end of last year, the company announced the acquisition of an oil tanker, Rainbow River, which based on its technical specifications could well be the sixth FPSO conversion candidate for Bumi Armada.
We maintain our earnings estimates and "buy" call on Bumi Armada with target price of RM4.48 based on 23 times trading multiples on FY12 earnings per share of 19.5 sen. With the moratorium restriction on cornerstone investors which collectively hold about 10% of Bumi Armada expiring on Jan 21, we expect potential profit-taking on the counter which could offer an opportunistic entry point for investors. — BIMB Securities Research, Jan 17
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