Armada ... May12

Alliance Research ...

Expands vessel fleet
Bumi Armada announced the acquisition of 2 AHTS vessels from Japan’s Sanko Steamship. The vessel purchase is timely as the group has been seeing very healthy demand for offshore support vessels of late. Latest fleet utilisation of the group stood at 96% hence the move to quickly expand their fleet. We continue to be positive on Bumi Armada, expecting healthy newsflow on contracts as the year progresses.

What’s in the news
 Bumi Armada announced that they had taken delivery of two Anchor Handling Towing Supply (AHTS) vessels from Beauty Offshore Limited and Bay Offshore Limited, both subsidiaries of Sanko Steamship, one of Japan’s largest ship owners.

 The 12,000 break horse power (bhp) vessels were designed and constructed in 2009 in Japan. They are 68m long with dynamic positioning capabilities and are ABS-classed offshore support, fire-fighting vessels. The vessels will be renamed Armada Tuah 07 and Armada Tuah 08.

Our comments
 The announcement comes as no surprise as Bumi Armada has mentioned the intention to grow their fleet. Growth by acquisition of ready vessels is appropriate at this juncture as ordering a vessel would incur up to 24 months or more of waiting time to delivery. We believe that each vessel would cost RM60-70m but this has not been confirmed with management.

 We have not factored in any earnings from new acquisitions of vessels into our estimates. Assuming that these 2 vessels are chartered out by June at a rate of US$3.00/bhp/day, it would add roughly RM40m in revenue and RM8m (20% profit margins) in profits over 2HFY12. Given that this makes up less than 2% of our FY12F earnings, we are leaving our estimates unchanged at this juncture. As for FY13 estimates, we leave it unchanged as well as RM16m in estimates profits from the 2 vessels would make up only 2% of full-year estimates.

 We see the group pressing on with their fleet expansion plans as demand for offshore support vessels has intensified. Latest fleet utilisation of the group is at 96%, up from 93% in 3Q11 and up from <80% in 3Q10.

Valuation and recommendation
 We continue to be positive on Bumi Armada and expect more contract flow for the group as the year progresses. The company is now tendering for 5 FPSO vessels supply contracts and we expect more tendering activity to come. It was announced recently that a new prospect for a FPSO has emerged in Gabon, West Africa, where Bumi already has 2 operating charters. Besides this, we are also on the lookout for Chemical Enhanced Oil Recovery (CEOR) contract in Malaysia. The latest contract opened for tender has been Angsi while the St Joseph contract continues to face some delays.
 We maintain our BUY call on Bumi Armada. Our TP of RM5.30 is premised on FY13 EPS of 26.5sen pegging an industry peak cycle PE of 20x.