Maintain BUY and SOP-based MYR4.40 TP. Bumi Armada continues to benefit from Lukoil. It has secured long-term charters for three new OSVs worth a total of USD0.5b commencing in 2014. This is positive for earnings, and further complements its operating presence in Filanovsky, Russia. Meanwhile, the LOA for the Kraken FPSO is slightly delayed but should be made known in a fortnight. Newsflow on the Madura FPSO could also come in before the close of 2013. These operating positives will more than make up for the disappointment that Bumi Armada was not re-designated a Shariah-compliant stock.

Charters three units of Ice-Class OSVs to Lukoil. Bumi Armada has secured contracts from Lukoil to provide three Ice-Class vessels to service offshore platforms in the Filanovsky field, in the Caspian Sea, Russia. These vessels comprise of: (i) two 5,280bhp support vessels, 80m in length, 16.5m wide with a 3.8m draft, Volga Don-compliant with DP2 capability, able to accommodate 24 persons and (ii) one 6,000bhp multipurpose support vessel (similar in specification to the 5,280bhp vessel) with temporary accommodation for 125 rescued persons.

10 + 10-year charters worth USD483m. These OSV contracts are for a fixed period of 10 years (USD262m; MYR844m) with the option to be extended for another 10 years (USD221m, MYR716m). The newbuilds are scheduled to commence works in Nov 2015. Pending delivery of these new vessels, Bumi Armada has secured an interim contract worth USD18m (MYR59m) to provide two support vessels and one rescue vessel for one year of work, commencing Nov 2014.

Earnings impact. The charter contracts equate to a DCR of USD4.33 per bhp. We estimate that these Ice-Class OSVs will generate revenue of USD26.2m (MYR84.4m) and EBIT of USD5.2-6.6m (MYR16.9- 21.1m) (20-25% margin) annually. The full impact of the contracts will be felt in 2016. Bumi Armada should reap a net profit of about MYR3m from the interim contract (i.e. from Nov 2014 to Oct 2015) in 2015, based on a third-party charter rate of 5%. Our forecasts are unchanged.  

Source: Maybank Research - 4 Dec 2013