Documente Academic
Documente Profesional
Documente Cultură
Malaysia
Initiating Coverage
6 March 2012
Buy (new)
Share price: Target price: RM4.13 RM4.88
Bumi Armada
The Armada strikes back
Initiating coverage with a Buy and RM4.88 target price. Bumi Armada (BA) offers a niche exposure to the Floating Production, Storage and Offloading (FPSO) market. As one of the fastest growing FPSO operators in the world, it has set its sights on being the Top 4 player in terms of FPSO fleet size by 2013. It is also poised to gain traction in Malaysias O&G sector, as it leverages on PETRONAS capex programme. BA, which is steadfastly building up franchise values, is a steady growth stock with a 3-year net profit CAGR of 25%. Bigger, bolder, better. BA is today a giant compared to its previous self. The restructured entity is now a powerhouse with a global presence, covering 4 core operations FPSO, Offshore Supply Vessel (OSV), Transportation & Installation (T&I) and Offshore Field Services (OFS). It commands an armada of 53 vessels: 5 FPSOs, 46 OSVs, 1 pipelay barge and SURF vessel operating across the the world. In an entrenched position to ride global E&P programmes. We see innumerable opportunities for BA to capitalize on the: (i) 125 potential FPSO projects worldwide, (ii) requirement for new, highly technical OSVs to support global deepwater programmes, (iii) services for the subsea umbilicals, risers and flowlines (SURF), inspection, repair and maintenance (IRM) markets, and (iv) increasing number of offshore development projects in Malaysia (marginal field and Enhanced Oil Recovery (EOR) development) and the Caspian region. Set to embark on an aggressive asset expansion plan. We see BA prospecting for new assets for growth. BA will likely double its FPSO assets, triple its SURF vessels and add 4 new OSV vessels to its fleet by 2015. This is possible as it has the balance sheet to support the heavy capex (estimated RM6.4b) for its expansion programme while keeping its net gearing below the 1.5x threshold. Strong earnings visibility 3 years out. We project a 3-year net profit CAGR of 25%. All divisions will contribute to growth, fueled by new vessels (FPSO, OSV, pipelay barges) progressively coming onstream and higher utilization (ex-dayrate revision) for the existing vessels.
Bumi Armada Summary Earnings Table
FYE Dec(RM m) Revenue EBITDA Recurring Net Profit Recurring Basic EPS (Sen) EPS growth (%) DPS (Sen) PER EV/EBITDA (x) Div Yield (%) P/BV(x) 1-yr na na YTD 0.7 (3.1) Net Gearing (%) ROE (%) ROA (%) Consensus Net Profit (RM m) FY10A 1,241.4 715.6 350.8 12.0 26.4 0.0 34.5 21.3 0.0 13.8 359.0 40.1 10.8 FY11A 1,543.9 845.1 387.3 13.2 10.4 2.5 31.2 16.4 0.6 3.4 49.9 10.9 9.3 FY12F 1,800.7 1,048.7 532.2 18.2 37.4 0.0 22.7 13.9 0.0 3.0 61.6 13.3 9.2 585.0 Source: Maybank IB FY13F FY14F 2,220.6 2,504.3 1,272.6 1,442.0 627.5 706.9 21.4 24.1 17.9 12.6 0.0 0.0 19.3 11.8 0.0 2.6 63.0 13.5 9.2 706.5 17.1 10.4 0.0 2.3 54.4 13.2 9.1 794.4
Wong Chew Hann, CA wchewh@maybank-ib.com (603) 2297 8688 Chong Ooi Ming ming.c@maybank-ib.com (603) 2297 8676
Stock Information
Description: Integrated Oilfield services provider with 4 core operations: FPSOs, OSVs, T&I vessels and offshore field services. Ticker: Shares Issued (m): Market Cap (RM m): 3-mth Avg Daily Volume (m): KLCI: Free float (%): Major Shareholders: Objektif Bersatu Sdn Bhd Ombak Damai Sdn Bhd Wijaya Sinar Sdn Bhd Karisma Mesra Sdn Bhd BAB MK 2,928.5 12,094.5 3.73 1,589.22 29.6 % 42.4 11.6 7.3 5.4
Key Indicators
Net cash (RM m): NTA/shr (RM): Net gearing (x): (1,760.6) 1.20 0.5
Historical Chart
4.5 4.2 3.9 3.6
3.3 BAB MK Equity
3.0
Jul-11 Sep-11 Nov-11 Jan-12
Kim Eng Hon g Kon g is a su bsi diar y o f Mal aya n Bank ing Ber had
6 March 2012
Page 1 of 60
Bumi Armada
Table of contents
Page Key investment merits Introduction: Bigger, bolder, better Snapshot of Bumi Armadas operations Floating Production, Storage & Offloading (FPSO) Offshore Supply Vessel (OSV) Transport & Installation (T&I) Offshore Field Services (OFS) Revenue and EBIT breakdown 7 12 16 16 17 3 4
20 26
Valuation Peers valuations FPSO operators Peers valuations OSV operators Risks Financial statements Appendix : Captains & Commanders of the Armada
6 March 2012
Page 2 of 60
Bumi Armada
Kim Eng Hon g Kon g is a su bsi diar y o f Mal aya n Bank ing Ber had
6 March 2012
Page 3 of 60
Bumi Armada
A well-managed set-up, driven by experienced management. Bumi Armada is led by an experienced, dedicated and culturally diverse senior management team that presides over an agile organisation. The group has proved it can attract worldwide talent (with over 20 nationalities) to operate across multiple countries while its flat organisational structure gives it the ability to react efficiently and quick ly to business threats and opportunities, both domestically and internationally. Hassan Asad Basma, the CEO of Bumi Armada, has an extensive 30 years of experience in the O&G industry with 18 years working knowledge in Asia.
6 March 2012
Page 4 of 60
BAN
OSVs and related logistics; 25 OSVs, 2 tankers and 1 FPSO
Restructuring
Tripled FPSO f leet size Newer, younger and bigger OSVs
Disposal of Haven
Floating Production Storage and Offloading (FPSO) Owns and leases 5 FPSOs 2 in Nigeria 1 in Vietnam 2 to start operations in Balnaves field Australia & D1 field India
Pipelay, heavy lift, subsea installation, floater, mooring installation and marine spread support services 1 DLB in the Caspian Acquired a SURF vessel- Armada Hawk
Converted and sold an FSO to Petrofac for the Sepat field Services cover all aspects of the oil field life cycle, from exploration to development, production and abandonment
Solely in house EPC and project management Executed the Steel on Water new build fleet expansion programme Oversaw conversion of FPSOs and construction and re integration of Armada Installer (DLB)
In-house management and operations of fleet: has access to over 1,300 crew members Offices and shore bases in Malaysia, Singapore, India, Brazil, the Congo, Mexico, Nigeria and Turkmenistan
6 March 2012
Page 5 of 60
Bumi Armada
6 March 2012
Page 6 of 60
Bumi Armada
12
9
2
1
6
3
11
12 9 7
2
4
1 4 4 2 1 2 1 2 Saipem 2 2
0
SBM Modec BW Teekay Bluewater Bumi Armada
1
OSX Maersk
Armada Perkasa
Armada Perdana
Armada TGT 1
Armada D1
Armada Claire
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
Bumi Armada
Arguably one of the fastest growing FPSO players in the field. Bumi Armadas FPSO fleet has expanded rapidly in recent years, with acquisitions averaging one new FPSO a year between 2007 and 2011. It refurbished the Armada Perkasa for a 3 rd contract in 2007 and secured contracts for Armada Perdana and Armada TGT1 in 2009. In 2011 Bumi Armada won two more contracts, chartering the Armada D1 to ONGC in India while the Armada Claire was contracted to Apache for its Balnaves field in Australia.
Bumi Armadas present FPSO fleet
FPSO Armada Perkasa & Armada Perdana Narrative Currently on operation in Nigeria. Armada Perdana is chartered to ENIs subsidiary; NAE for the Oyo field while Armada Perkasa is leased to Afren for the Okoro Setu field with firm 10 year contracts till 2019. Petroleum consultants Netherland, Sewell & Assoc, Inc. (NSAI), have recently certified gross 2P reserves in the Okoro Setu field at 19.5m barrels (bbls) of oil (as at Dec 2010) and 626m-2,200m bbls for Oyo (Apr 2011). To-date, only 15.2m and 3.6m bbl have been produced respectively. Armada TGT1 Chartered to PetroVietnam for the Te Giac Trang (TGT) field in Vietnam. Production began on 22 Aug 2011; the contract period is till 2018 with the potential for extension up to 2026. A 2nd well is expected to be added in 2012. On 10 Aug 2011, Bumi Armada signed a charter with ONGC to lease an FPSO for the D1 field in India. The USD620m contract is fixed for 7 years (2019) with annual extension options for another 6 years (2025). Bumi Armada has a 49.99% stake in the FPSO with the rest held by Forbes & Company Ltd Bumi Armada has recently signed a contract with Apache Energy Ltd in Sept 2011 to lease Armada Claire to the Balnaves development in Australia. With 14m-19m bbls of reserves, expectations are for 1st oil before 2014. Contract value of USD445m (RM1.46b). Rainbow River is an Aframax tanker on which Bumi Armada has the option to convert into an FPSO.
Armada D1
Armada Claire
Rainbow River
Proven and prospered, even during the credit crisis. Operationally, Bumi Armada has proven its technical excellence, track record and execution capabilities in the FPSO business. It has been able to deliver vessels on time, fully funded and within budget even during the global financial crisis in 2008. The Armada Perkasa, Armada Perdana and Armada TGT1 vessels have met all contractual uptime performance requirements to-date. Arguably among the most efficient FPSO operators in the world. From a financial perspective, Bumi Armada is among the better-run operators in the FPSO circle. Its EBIT margins of 27-32% are the highest vis--vis its peers 9-26%. Comparatively, it has the advantage of a lower cost base structure vis--vis its European counterparts. This is due to its effective cost management (i.e. firm cost controls, facility to source for funds and tankers at decent rates, close proximity to yards) and ability to execute projects with minimal cost overruns.
6 March 2012
Page 8 of 60
Bumi Armada
6 March 2012
Page 9 of 60
Bumi Armada
Vessel 6: Aframax Rainbow River: (Purchase option secured, conversion candidate for next FPSO project)
Vessel details Terms Area of operation: Contract amount (USD m): Duration: History: Performance Statistics Production capacity (bpd 000): Storage capacity (bbl 000): Ave. daily production (bpd): Hull age, type and conversion yard: Sources: Company, Maybank-IB na na na Details na na na GNMs Rainbow River, purchase price RM68m Ship Dimensions Length (m): Breath (m): Draft (m): Dwt (000 tonnes) 246.0 42.0 14.7 107.2
6 March 2012
Page 10 of 60
Canada
Northern Europe
Armada Perkasa, Okoro Setu, Nigeria (2008-2013/18) Armada TGT1, Te Giac Trang (TGT), Vietnam (2011-2018/26)
Gulf Of Mexico
Mideast/ SW Asia
Far East
Brazil
Armada Perdana, Oyo Nigeria (2009-2019)
Africa
Australia/ NZ
6 March 2012
Page 11 of 60
Bumi Armada
(ii)
A large and modern fleet. Bumi Armada has a large and modern OSV fleet with cross-border operational capabilities at both green and brownfields. It owns 25 Anchor Handling Towing Support (AHTS) vessels, 8 accommodation workboats workbarges, 3 mooring launch vessels, 3 Straight Supply Vessels (SSVs), 3 platform supply vessels (PSV), 2 utility vessels, a standby vessel and an oil recovery vessel. The biggest operator in Malaysia, 3 in SEA. With a fleet of 46 OSVs, Bumi Armada is the largest fleet operator in Malaysia and 3 rd in Southeast Asia, by size and competitiveness. According to Infield st Services Limited, Bumi Armada is recognised as a 1 tier OSV player (i.e. a sizeable fleet capable of servicing large operators and projects). Its other accolades include being the first domestic operator to own and operate dynamic positioning (DP) AHTS for deepwater projects (Kikeh). 70% waiver on Malaysia tax due to Section 54A. Bumi Armada is one of a select few OSV operators that enjoys Section 54A status under the Malaysias Income Tax Act. This grants the group a 70% waiver on income tax from its Malaysian-flagged vessels. Has a young fleet; 8 years average. Most of the vessels are deployed in Malaysia (28 units). In the overseas market, 16 of its vessels are deployed in Africa (i.e. Nigeria: 10, Congo: 1), South & Central America (i.e. Venezuela: 1, Mexico: 1, Brazil: 2) and Asia (i.e. Brunei: 1). The fleet is young, with an average age profile of 8 years. 54% of its vessels are 6 years old or less. 2 contracted newbuilds are under construction. Decent utilization rates. Bumi Armada has successfully chartered its vessels at decent rates and at decent utilization levels over the past three years. In terms of vessel-type, the accommodation workboats/ barges are the most employable, with high utilization rates of 80-91% in 2008-10. Meanwhile, the AHT and AHTS segment is the most volatile, with utilization ranging between 66% and 98%. In 4Q 2011, Bumi Armadas OSV fleet enjoyed a commendable 96% utilisation rate.
AHTS: Dayrates and utilization level (2008 2010)
Year 2010 2009 2008 1.15 DCR range (USD per bhp) 1.32 1.22 2.82 3.57 3.85 Utilization rate (% ) No. of OSVs (unit) 65.7 86.9 95.1 23 18 14
rd
Sources: Company, Maybank-IB; * excludes Armada 5, Armada 6 and Armada Tugas 1 that are under jointly-controlled entity; Armada Century Ltd 6 March 2012 Page 12 of 60
60 PACC
Size (Current+ New build fleet)
50
40 Ezra Great Offshore Pacific Richfield 20 Pelican Vietsovpetro Ajang Chuan Hup Strato 0 ODS market presence score NC Greatship Eastern Offshore Scomi Swissco CH Offshore Swiber Sealink Pacific Radiance Trinity Offshore ASL RK Jaya
30
10
Otto Marine
Source: Infield
6 March 2012
Page 13 of 60
Murphy Oil Petrobras Petromin/ PDVSA DESB Inoilco Nautika Talisman Superior Energy, USA Trese, Mexico Diamond Shell Shell Shell PETRONAS Maritime
Nautika Petrobras nm nm
6 March 2012
Page 14 of 60
Gulf Of Mexico
1
South East Asia
Venezuela 1 10
1
Mahakam, Congo
Africa
29
Brazil
2
Legend
Number of OSVs in the region
962
8 vessels 8 vessels
14 vessels
18 vessels
6 vessels
2008
2009
2010
6 March 2012
Page 15 of 60
Bumi Armada
6 March 2012
Page 16 of 60
Bumi Armada
OFS 14%
FPSO 44%
T&I 16%
FPSO 39%
OSV 52%
FPSO 48%
OSV 21%
T&I 26%
FPSO 43%
OSV 26%
6 March 2012
Page 17 of 60
Bumi Armada
Steady EBIT margins trend. On a blended basis, Bumi Armadas EBIT margin has been consistent, averaging around 34-40% over the past 3 years. Its 2011 EBIT was negatively impacted by a confluence of oneoff items: (i) the Armada Installer was dry docked in 3Q for upgrading, (ii) an estimated RM22m in listing expenses, (iii) RM6m in fair value changes of call options and (iv) higher depreciation (RM78m) due to additional vessels (i.e. FPSO and OSV). Operationally, the FPSO division had consistently delivered reasonable EBIT margins of 28-33% in 2009-11. The EBIT margin for OSV typically mirrors that of its FPSO operations, albeit with a lower 21-25% range. The T&I division commands the highest EBIT margin among the three core operations. Despite Armada Installer being dry docked, the segment still generated 48% EBIT margins in 2011.
Bumi Armada: EBIT by division
FPSO (LHS) T&I (LHS) Blended EBIT margin (RHS)
500
400
300
40
55.3%
48.4%
30
88.9 179.2
20 200.2 10
0
27.7% 27.1%
24.6% 28.3%
21.2% 32.4%
24.2%
32.9%
2008
2009
2010
2011
2008
2009
2010
2011
Earnings breakdown by geography. Bumi Armada operates across 4 continents, from the rich offshore oil fields in the Gulf of Mexico, Brazil and Venezuela, to West Africa (Angola, Nigeria and the Congo), the land locked Caspian Sea, Vietnam and resource rich Australia. Asia and Africa anchor earnings. Geographically, Asia (ex-Malaysia) and Africa were the 2 major contributors to group revenue in 2010 at 43% and 35% respectively. Malaysian operations came in third with a 15% share, followed by Latin America (7%). No geographical breakdown was provided in 2011.
Africa 42%
M'sia 41%
Americas 6%
Africa 35%
Americas America 7% s
7%
6 March 2012
Page 18 of 60
Bumi Armada
SECTION 2: OPPORTUNITIES
6 March 2012
Page 19 of 60
Bumi Armada
(%)
100
10
8 6 4
95
90
85 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 80
Source: ODS-Petrodata
6 March 2012
Page 20 of 60
Bumi Armada
The current global supply and demand outlook is promising, and offers new opportunities for growth in the industry. The chart below summarises the current supply and demand picture. The supply side consists of all producing and ordered units while the demand side is calculated on the basis of outstanding projects, i.e. firm tenders, planned and possible.
FPSO: Supply and demand based on existing projects only
(Units)
250
Producing FPSOs
High demand
Base
Low demand
250
200
200
150
150
100
100
50
50
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: ODS-Petrodata
Owned FPSOs 1 2 2 2 2 3 4
1 1 1 1 1 2 2 2 2 0 1 1 1 1
4 1 2 6
1 1
3 3
4 5 6 7 9 13 14
24
3 3 1 3 0 19 1
19
6 March 2012
Page 21 of 60
Bumi Armada
2
Canada
22
Northern Europe
14 3 5 Gulf Of Mexico
Mediterranean
Far East
32 Brazil
37 Africa
1
Mideast/ SW Asia
20
South East Asia
13 Australia/ NZ
Legend
Number of FPSOs deployed in the region
6 March 2012
Page 22 of 60
Bumi Armada
3. Outlook
Current order backlog for FPSOs worldwide stands at 40 units, comprising 16 newbuilds and 24 conversions. Of the 40 units, 3 units are on speculative orders without field contracts. Brazil currently dominates orders for 21 FPSOs, which include 8 serial pre-salt units. The underlying growth in Brazil is largely due to: i) ii) Petrobras plans to develop a new pre-salt province entailing at least 40 large scale FPSOs and compliance with local content clauses for FPSOs (up to 65%)
5
Northern Europe
1
1
Mediterranean
Gulf Of Mexico
21 Brazil
4 Africa
1
Mideast/ SW Asia
2
South East Asia
2 Australia/ NZ
3
Legend
Number of FPSOs to be deployed per region
6 March 2012
Page 23 of 60
Bumi Armada
The medium-term outlook. Projection-wise, 200-250 new orders for FPSOs are expected to enter the market over the next 5 years. The orders are categorized into 2 core groups for: (i) visible and (ii) future emerging projects. (i) Visible projects: In the planning pipeline are 125 firm projects that potentially require FPSOs should the projects go to development. FPSO is the only likely production solution for 100 of these projects. The remaining 25 projects could require either FPSOs or other types of production solutions (i.e. tension-legged platform (TLP), semi-submersibles, SPAR). With a few exceptions, all the projects are declared discoveries, some of which will require multiple FPSOs for development. Future emerging projects: A reasonable estimate is that 75 to 125 FPSO projects will emerge over the next 5 years that are not now visible. This estimate is based on an assessment of the number of projects in the current planning list and was not visible a few years ago.
(i)
4. Sensitivities of projects
Insensitive Based on the analysis of the 125 potential FPSO projects, it is estimated that about 30% are relatively insensitive to short-term market conditions. The decision to proceed will be based on long-term oil price assumptions and potential of the project to build reserves. The need to replace reserves and the opportunity to exploit large hydrocarbon complexes provide continuous momentum for project development. This grouping comprises big projects involving large reservoirs offshore Brazil and West Africa. Sensitive 40% of the 125 projects are considered opportunistic projects, which require a robust oil price environment to proceed. They generally involve projects with relatively small reserves and non-major oil operators. These groupings are projects located in South East Asia. Somewhat sensitive: 50/50 30% of the visible 125 FPSO projects are considered somewhat sensitive to short term market conditions, where to some degree, underlying short to mid-term crude oil prices are taken into account in making an investment decision. These projects are spread over a wide spectrum of geographical areas and generally involve fields with mid-size recoverable reserves, heavy oil or difficult access.
6 March 2012 Page 24 of 60
Bumi Armada
Most likely scenario: 100-140 units by 2015. In our view, we see orders for 100 to 140 FPSOs over the next 5 years, averaging 20-28 new units p.a. from 2012-2015. This includes new units and redeployments, which will generate capital expenditure (capex) of USD65b-85b over this period. The bulk of the variation between the 3 scenarios is in the small- to mid-size FPSO orders. An 80:20 ratio for newbuild and conversion vs. redeployments. We opine that 80% will be satisfied via newly built or converted units while the remaining 20% of the FPSO projects will be on redeployment basis. All redeployment will be of small- to mid-sized FPSOs.
Forecasted FPSO new orders over the next 5 years 3 scenarios
Low case Oil price: USD70-90/ bbl Unit Capex (USDb) 26 8 31.2 6.4 Reasonable case Oil price: USD90-110/ bbl Unit Capex (USDb) 28 8 33.6 6.4 High case Oil price: > USD110/ bbl Unit Capex (USDb) 30 8 36.0 6.4
Types of FPSO Large FPSOs New converted units with 150-250,000 bpd Topsides pre-salt hulls Midsize FPSOs New converted units with 80-150,000 bpd Topside spec hulls Modified redeployed FPSOs Small FPSOs New converted units below 80,000 bpd Modified redeployed FPSOs Total
24 3 3
29 3 4
34 3 5
0.40 0.15
25 11 100
34 14 120
42 18 140
28-80% growth on the horizon. The next 5 years forecast (2011-15) of 100-140 units new FPSO order is a 28-80% increase when compared against actual orders over the past 5 years (2006-10). The strong growth rate may partly be attributed to the: (i) depressed global financial and commodity markets in 2008-09 and (ii) FPSO market at the pre-inflection stage, with growth accelerating YoY. Our expectation is that FPSO orders will grow at an increasing rate as the need for new oil supply sources grows and major deepwater finds continue.
Forecasts of FPSO orders over the next 5 years by size
(Units)
160 120
Large FPSOs
Midsize FPSOs
Small FPSOs
Series4
140
120 78
80
100
60 48
36 30 34 36
42
40
6 March 2012
Page 25 of 60
Bumi Armada
Target, focus and criteria. Based on the set criteria, we opine that Bumi Armada will most likely focus on: (i) small-sized FPSO projects, (ii) converted FPSOs, (iii) Asia Pacific (i.e. Asia and Oceania) and Africa markets, and (iv) Oil companies that typically lease FPSOs. 25 potential projects identified. Based on our screening criteria listed above, we have identified 25 potential projects, located in 12 countries: Angola (1), Australia (1), Cameroon (1), Gabon (1), India (3), Indonesia (4), Malaysia (5), Nigeria (2), Thailand (1), The Philippines (1), Tunisia (1) and Vietnam (4). In terms of time-line: 25 potential projects oncoming projects that fit Bumi Armada
Year 2012 (8 projects) Country India Indonesia Malaysia Malaysia Malaysia Malaysia 2013 (5 projects) Vietnam Angola Indonesia Thailand Vietnam 2014 (12 projects) Australia Cameroon India Indonesia Gabon Nigeria Vietnam Malaysia The Philippines Tunisia Source: IMA 6 March 2012 Page 26 of 60 Field Cluster 7 oil field (C 7) Madura BD, Bukit Tua (2 units) Gumusut-Kakap (temporary) PM301/PM325 (Kamelia) PM302 (Bunga Dahlia and Teratai) SB 302 (Belud) Dong Do/ Thang Long Block 15/06 Badik B6/27 Blk 102/106, Lac Da Vang (2units) Lady Nora Etinde IE/IF Dhirubhai, KG-DWN-98/2 (2 units) Ande Ande Lumut Dussafu Ruches Aje, Bilabri/Orobiri (2 units) Dai Nga N3/Spaoh West Linapucau Cosmos
Bumi Armada
The FPSO tenders that we gauge Bumi Armada has entered into to date are in India, Indonesia, Vietnam, Malaysia, Angola and Nigeria.
FPSO tenders that Bumi Armada could have a high prospect of winning
Country India Operator Oil & Natural Gas Corporation (ONGC) Description We do not rule out Bumi Armada expanding further into the Indian FPSO market. ONGCs Cluster7 FPSO tender is a likely project, which is at the bidding/ final design stage stage. ONGC requires an FPSO that can handle 30,000 bpd of oil and 63mmscfd of gas with storage capacity of 0.5m bbl and operate up to 100m water depth. It is no secret that 8-10 prospective contractors took part in a pre-bid meeting by ONGC. The notable names apart from Bumi are: (i) Malaysia-based M3Nergy, (ii) Singapore-based Tanker Pacific, (iii) Indias ABG Shipyard, (iv) Pipavav Shipyard and (v) Mercator. ONGC has another project in India, KG-DWN-98/ 2, a marginal field offshore Andhra Pradesh on Indias East Coast, that requires an FPSO. Production is slated for 2014/16. However, the project had several false starts in the past. This project is at the planned or being studied stage. We rate Bumi Armadas chances for the Cluster 7 FPSO project as high. Bumi Armada could penetrate Indonesias FPSO market this year via Husky Energys tender for an FPSO to develop its Madura BD field off East Java. Husky requires an FPSO that can handle 8,000 bpd of condensates and 110 mmscfd gas with storage capacity of 370,000 barrels. The FPSO is required to handle sour gas while operators face strict bidding requirements in terms of both local cabotage laws and financial performance bonds. The charter period offered is a firm 10-year term with up to 5 annual extensions. It has been reported that Bumi Armadas competitors are BW Offshore, M3nergy, Tanker Pacific and EMAS. We gauge Bumi Armadas chances to be fair for this project.
Indonesia Husky/CNOOC
6 March 2012
Page 27 of 60
Bumi Armada FPSO tenders that Bumi Armada could have potentially participated in to-date (continued)
Country Vietnam Operator PetroVietnam/ PETRONAS Description We expect the Lam Son Joint Operating Company FPSO contract to be awarded in 2012. The FPSO will develop 2 oilfields in the Cuu Long basin field. This project is in the bidding/ final design stage. The field, co-owned by PetroVietnam and PETRONAS, requires a FPSO with up to 18,000 bpd of oil processing capacity and storage space for 350,000 barrels. The FPSO will initially process oil from the Thang Long fields, followed by the Dong Do field. This is a 7-year fixed-term contract with the option to extend for 3 years. We understand that Fred Olsen Production is the favoured bidder. It has received a Letter of Intent due to its competitively-priced bid. However the contract has not yet been finalised. There are 3 other projects in Vietnam; (i) Dai Nga, (ii) Blk 102/106 and (iii) Lac Da Vang, which require FPSO, MOPU/ FSO or fixed platform as production solutions. These projects are scheduled to hit first oil in 2013-2015. These projects are at the planned or being studied stage. There are 5 projects in Angola, which are at the bidding or final design stage. They are: (i) Block 14 Negage, Lucapa, (ii) Block 18 Platina, Chumbo, Cesio, (iii) Block 31 Ceres, Heve, Urano, Titania, Terra, Miranda, Cordelia, Portia, Dione, Leda, Oberon, Tebe, (iv) Block 15/ 06 hubs Ngoma/ Sangos/ Cabaca Norte/ Nzanza/ Cinguvu/ Mpungi/ Cabaca Southeast and (v) Block 16 Chisonga. These projects are at the bidding/ final design stage stage. Based on Bumi Armadas technical track record limits, we opine that the Block 15/ 06 hubs appear to be the most likely target for Bumi Armada due to the shallow water depth (470-1,420m); the other fields are in ultra-deep waters (1,300-2,220m). For this particular field, the chances of a win are higher, in our opinion, as 2-3 FPSOs are likely to be utilised. We are optimistic of Bumi Armadas chances in clinching this contract. We have identified 4 other projects in Angola, which are at the planning stage and which are currently being studied. They are the: (i) Block 32. (ii) Block 17/ 06, (iii) Block 18/ 06 and (iv) Block 33. Still, Block 15/ 06 remains the most likely target due to the favourable environment (easy to moor), water depth (470-1,420m) and existing relationship with ENI. The project is expected to kick in by 2013 (earliest). Bumi Armadas prospects in Nigeria are likely to be most favourable for the Aje field, owned by Chevron/ Yinka. This field however is still at the planning stage. The water depth is favourable at 90m with the field targeted to achieve first oil by 2014. Apart from Aje, there are 10 other fields in Nigeria, which are currently being studied. Up to 4 FPSO projects could be awarded this year in Malaysia. They are: (i) SB 302 (Belud), (ii) PM301/PM325 (Kamelia), (iii) PM302 (Bunga Dahlia and Teratai) and (iv) Gumusut-Kakap (a temporary FPSO with short-midterm charter) The first 3 are fast-tracked projects brought forward to boost Malaysian gas supply needs; first gas/oil is targeted for 2014 while the last would be a short-term contract. Belud FPSO - It has been reported that the M3nergy and EMAS consortium submitted the lowest bid in a recent tender for the Belud FPSO, offering the FPSO Lewek Arunothai whose charter was prematurely terminated in Thailands Arthit field in 4Q2011. However, considering the FPSO Arunothais chequered operating history, Hess is reported to have offered Bumi and MISC a second chance to match the consortiums bid. Kamelia and Bunga Dahlia & Teratai FPSOs - Both the Kamelia and Bunga Dahlia/Teratai projects will require floating solutions for field development. With both fields targeted to achieve first gas by 2014, we expect contract awards by this year. Should M3Nergy win the Belud job, we reckon either Bumi or MISC could win one of these. Spaoh FPSO. The Spaoh field aka NC3 will likely use an FPSO or fixed platform. Further appraisal is being planned. This field will hit first oil by 2014/16.
Angola
ENI
Nigeria
Malaysia
PETRONAS/ Shell
Hess/
Bumi Armada
1000
800 600
800
70 400
400
200 0 2005 2006 2007 Demand (LHS) Utilisation (RHS) 2008 2009 2010 Supply (LHS) Malaysia Flag (RHS)
70 60
50
60 50 2005 2006 2007 Demand (LHS) Utilisation (RHS) 2008 2009 2010 Supply (LHS) Malaysia Flag (RHS)
1,600 1,400
1,200
1,000
800 600
400 2001 2003 2005 Demand Effective supply 2007 2009 2011 2013 2015 2017 Total supply Effective supply ex 30 ex y.o.s
2007
2009
6 March 2012
Page 29 of 60
90 80
70
60
50 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11
Sources: ODS-Petrodata, Maybank-IB
2. Outlook
Positive trends over the next 18-24 months. The vessel market for the 5,000bhp AHTS segment remains weak and oversupplied but the 8,000-12,000 bhp AHTS segment is seeing moderate progress in rates as several recent contracts have secured decent charter rates. Newbuilds tailing off. 338 orders committed in the past few years will enter the market in 2011-14. Overall, newbuild deliveries are tailing off as the pace of orders has significantly slowed down. PSVs are in demand. Newbuilding activities so far are nominal, largely confined to the larger specification vessels (i.e. 8,000-12,000bhp AHTS) and PSVs with higher DWT (>3,000t dwt).
(Units) 250
15,000-17,999 (bhp) 25
<3,000 4,000+
(bhp) 6 5
200
150
20
15
80 60
40 20 0 2001 2003 2005 2007 2009 2011 2013
4 3
2 1 0
100
50 0 2001 2003 2005 2007 2009 2011 2013
10
5 -
6 March 2012
Page 30 of 60
200
150 100
200 150
100 50 0
224 166
164 104 36 2006 2007 2008 2009 2010 2011 2012 2013 4 2014
50
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: ODS-Petrodata, Maybank-IB
Dayrates have stabilized. Dayrates after going through the floor have stabilized, as the market gradually absorbs the overbuilt situation. The low orderbook/fleet ratio of less than 20% supports our view that the current momentum will continue into 2012. We expect day rates to trade sideways and only improve over the next 18 months. A cyclical recovery in motion. We expect a cyclical recovery in demand for offshore vessels. The strength in oil prices is a key secular driver for OSV demand for it encourages further offshore exploration and drilling activities. OSVs will be required to support growth. Our house economist forecasts oil price to average USD100/bbl in 2011 (WTI) and USD110/bbl in 2012. WTI crude ended last Friday at USD106/bbl after touching a year high of USD109/bbl the week before. All good things come to those who wait. Putting things into perspective, the demand and supply disconnect for offshore vessels should normalize in the later part of 2012. Utilisation rates are on the rise, with the steepness of the increase depending on the type of vessels.
15,000 bhp
10,000-14,999 bhp
70
60 50 40
30
20 10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
20 15 10 5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
6 March 2012
Page 31 of 60
100
90 80 70 60 50 40 30 20
80
70
15
60
50
10
40
30
20
10
20
10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
15% 21%
0-19 yrs
20-29 yrs
31%
34%
0-19 yrs
20-29 yrs
64% 30 yrs+
35%
30 yrs+
13% 14%
0-19 yrs
40%
29%
0-19 yrs
20-29 yrs
20-29 yrs
73% 30 yrs+
31%
30 yrs+
6 March 2012
Page 32 of 60
AHTS 55%
AHTS 54%
AHT 7%
PSV 39%
AHTS 54%
AHTS 84%
Pipelay/ Derrick Pipelay 37% Diving Support 19%
OSV: Global demand for AHTS, PSV and construction vessels by region
12%
Asia Pac Europe
11%
11% 22% 21% 22%
13%
Asia Pac
Europe
N. America C&S America
41% 25%
N. America Caspian & CIS C&S America Med & Mid East
N. America Caspian & CIS C&S America Med & Mid East
10%
11%
3%
4%
4%
West Africa
1%
13%
21%
West Africa
1,003 AHTS
716 PSVs
6 March 2012
Page 33 of 60
Bumi Armada
6 March 2012
Page 34 of 60
Bumi Armada
As well as upcoming shallow water projects. Deepwater projects aside, 65-70 new platform structures are required for shallow waters in 5 years. 22 new open shallow water blocks, covering over 240,000 sq km are open and available for data review. Based on PETRONAS announcement, there is a need to construct 65-70 (small and large) fixed structures and platforms for its domestic operations over the next 10 years.
Malaysias deepwater reserves potential
Metres below sea level 0 200 400 Gumusut-Kakap 650 m bbl Malikai 108 m bbl Jangas 81 m bbl Kamunsu 401 m bbl
600
800 1,000 1,200 1,400 1,600 1,800 Pisangan 56 m bbl
2,000
Sources: PETRONAS, Maybank-IB
Gumusut/Kakap
Malikai
Indicative First Oil Exploration Strategy Exploration Appraisal & Reservoir Evaluation Field Development Studies Preliminary Engineering
Project Implementation
Kebabangan
Jangas
Ubah Crest
Pisangan Kamunsu
Source: PETRONAS
6 March 2012
Page 35 of 60
Bumi Armada Malaysias planned oil production: Shallow and deepwater fields
100%
Deepwater fields
2011F
2012F
2013F
2014F
2015F
2016F
2017F
2018F
2019F
2020F
Source: PETRONAS
OBO (Greenland)
2 blocks
North Sea
OBO (Vietnam) 1 block COB (Malaysia) OBO (Mauritania) 1 block CBO (Mauritania) 2 blocks
OBO (Egypt)
7 blocks
2 blocks
CBO (Cuba)
4 blocks
Gulf of Mexico
West Africa
Offshore Brazil
Deepwater hotspot Emerging hotspot
OBO (Indonesia)
OBO (Malaysia) 11 blocks
3 blocks
COB(Mozambique) 3 blocks
OBO (Mozambique)
1 block
6 March 2012
Page 36 of 60
Bumi Armada
Congo 6%
Cameroon 6%
Sierre Leone 3%
Peru 1%
Chile 1%
Mexico 11%
6 March 2012
Page 37 of 60
Bumi Armada
6 March 2012
Page 38 of 60
Bumi Armada
10,285 2013 4,367 1997 2,930 2006 2,608 2010 1,664 2006 1,190 1949 898 2016 833 1972 720 2018 463 2018 Sources: Wood Mackenzie, Maybank IB; * State Oil Company of Azerbaijan
Kashagan ACG Shah Deniz (gas) Severnyi Livanov SOCAR Assets* Khvalynskoye (gas) Cheleken Kalamkas More Pearls
Kazakhstan Azerbaijan Azerbaijan Russia Turkmenistan Azerbaijan Kazakhstan-Russia Turkmenistan Kazakhstan Kazakhstan
2023 2011 2018 2024 2021 1981 2018 2015 2021 2023
Artificial Island Fixed platform Fixed platform Fixed platform FPSO/ fixed platform Fixed platform Fixed platform Fixed platform Fixed platform Fixed platform
Turkemenistan 13%
Kazakhstan 11%
6 March 2012
Page 39 of 60
Bumi Armada
A duopoly market; with good day rates and long-term charters. With the Caspian Sea almost a closed off market, as harsh winters, render the region landlocked for much of the year, having a vessel within the market is a key competitive advantage for operators. Only two pipelay vessels are currently available in the region, one operated by Momentum Group (Israfil Huseynov) and another by Bumi Armada (Armada Installer). Given the limited number of players, dayrates and utilization rates are expected to remain healthy over the next five years.
Caspian Sea heavy lift demand & supply
(Vessel Days) 16 14 12 10
400 300
Lay demand
Lay supply
500
8 6
4 2
200 100
0
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Infield Systems Limited
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Infield Systems Limited
6 March 2012
Page 40 of 60
Bumi Armada
New assets to drive T&I earnings. Bumi Armada acquired the Acergy Hawk (now named Armada Hawk) in June 2011. Thus far the vessel has worked on riser installations for the FSO Sepat and will spearhead bids for SURF installation and IRM projects in Asia. We expect Bumi Armada to add a third vessel, similar to the Armada Hawk in 2012, which would contribute about RM60m-90m in revenue p.a., assuming USD70,000 dayrates. Moreover, Bumi Armada can fit an existing AHTS Tuah 104 with an A-frame to undertake T&I works.
Major projects worldwide SURF contracts
2010 Contract 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Total Sources: Instok, Maybank-IB 2,300 5,114 Block 17-CLOV Roncador 3 Laggan Tormore Mars B Value (USD m) 1,300 520 250 230 2011 Contract Greater Gorgon Lula Nordeste Liwan Block 15-06 Tamar Guara-Phase 1 Barzan Phase 1 Jack/St. Malo Big Foot Lucius Prelude Papa Terra Clair Ridge Waimea OSX 1 Value (USD m) 945 650 585 460 420 416 400 300 230 220 180 150 90 68 2012 Contract Egina Caricoa Tweneboa Cernambi Guara-Phase 2 Gehem Ichthys Franco-FPSO 1 Gendalo Shtokman Nsiko Baleia Azul Freedom Myammar M-9 West Nile Delta Pipeline Mad dog Waimea Value (USD m) 1,300 960 850 656 544 450 450 448 360 300 300 288 160 131 125 100 100 68 7,197 6,812 2013 Contract Wahoo Block 31 South East Browse LNG Leviathan Wheatstone LNG Franco-FPSO 2 Iara-FPSO 1 Moho Bilondo 2 Florim Rosebank Shenandoah Jubilee FPSO 1 Pluto LNG 2 Vito Abadi LNG Value (USD m) 928 920 783 750 657 592 496 320 288 240 230 220 198 190 126
SURF
10,000
8,000 6,000 4,000 2,000
Nigeria
UK
GOM
404
276
111
2004
157
254
243
166
2010
Source: Instok
2011
2012
2013
2014
2005
2006
2007
2008
Source: Instok
6 March 2012
Page 41 of 60
Bumi Armada
Source: PETRONAS
Source: PETRONAS
6 March 2012
Page 42 of 60
Bumi Armada
Positive outlook. The government is developing marginal fields in Cuu Long basin in an effort to boost production. Australia 10 O&G fields identified Positive outlook. New innovative concepts have been developed to explore marginal fields, which are economically viable. New Zealand 165 new marginal fields Positive outlook. Government is keen on rapid development of smaller, economically marginal fields identified to meet countrys energy deficit. India 165 new marginal fields Positive outlook. 44 fields have been monetized. 90 fields are in the process of being put to identified production. China 30 O&G fields identified Moderate outlook. Progress on marginal fields has been restricted due to unfavourable PSC conditions and tight government controls. Sources: Origin Business Engineering B.V., Maybank-IB
Marginal field development to see rapid progress in Malaysia. PETRONAS will adopt the fast track approach to execute its marginal field projects, as it aims to secure 1st oil and/or gas as fast as possible (within a 12-month period) with minimal capex and infrastructure requirement. Development will be through innovative solutions. PETRONAS will develop 25 domestic marginal fields as it seeks to reverse declining output of Malaysias existing reserves. The marginal oil fields have 30m barrels of oil reserves and unlocking these fields is expected to raise Malaysias crude oil production by 55,000 bpd (+10%). The capex required to develop a marginal field is around USD800m and the breakeven cost is estimated at USD70/ bbl. Marginal fields to be developed via the RSC model. The marginal field programmes will be developed via Risk Sharing Contracts (RSC) and not the conventional Production Sharing Contracts (PSC) accorded to oil majors participating in Malaysias major O&G fields. The RSC is aimed at making the project viable and attractive for smaller independent oil companies (IOCs). PETRONAS has kicked off marginal field development, more to emerge. The first two pilot projects, Berantai and Sepat, have been rolled out and we anticipate 2 more (Balai and Bentara) to be awarded soon. It is understood that at least 5 more hydrocarbon discoveries are being looked at. The fields under consideration are said to include the Cenang and Tembikai gas discoveries near Talisman Energy operated Block PM 314. The other finds Diwangsa, Rabung, Korbu, Desaru and Jambu could also be on the table.
6 March 2012
Page 43 of 60
Bumi Armada
Tapis Lower J
150
Others
Source: PETRONAS
...3x times larger than marginal field plans...The ultimate goal, according to PEMANDU, is to add 220,000 bpd of oil from EOR initiatives and marginal fields accounting for 1/3 of domestic production. The greater emphasis on brownfields stems from the relatively easier, faster and lower incremental cost per barrel of increased production. The ultimate winner we feel will be the company able to deliver executable, cost effective and quick to deploy solutions. ...with RM45.9b capex committed. Petronas & Shells EOR projects for St. Joseph, South Furious (SF30), Barton and the Baram Delta Operations (BDO) call for USD12b (RM36b) in investments to develop the 9 fields of Sarawak and 4 fields in Northern Sabah. Meanwhile, Exxon will be rehabilitating the Tapis (RM3.2b), Guntong, Tabu, Palas, Seligi, Irong Barat and Semangkok fields (RM3.6b) and 2 mature gas fields, Jerneh & Lawit Bintang (RM3.1b) off the peninsular.
6 March 2012
Page 44 of 60
Bumi Armada
(ii)
St Joseph EOR. This is a similar project to Angsi but requires a smaller SWRO unit. The project requires the vessel to handle an initial 10,000bpd water and chemical injection during the pilot phase (12 months). If this is successful, the vessel will undergo modification to triple its injection capacity to 30,000bpd. Requires a 30,000bpd SWRO now with an Angsi size unit to follow. Unlike the Angsi field, the main asset (i.e. vessel) will be owned by Shell with the winner earning project management fees. However Shell intends to source a larger vessel when the economic viability of the project has been ascertained, to support the full field injection of 15,000bpd. Relocation from Angsi to Sabah? We understand from discussions with O&G service providers that chemical alkaline surfactant polymer treatments are normally carried over a 3-4 year period. Based on the 150,000bpd processing capacity required for the Angsi SWRO unit, we estimate the vessel hull size could at least be an aframax tanker (market price RM60m70m per unit). Considering the modifications and quantity of topside equipment required we think it likely the same floater
6 March 2012
Page 45 of 60
Bumi Armada
will be utilised at both fields, consecutively, allowing the capex to be depreciated gradually. Bidders and potential winners. Bumi Armada and six other operators (BW Offshore, MISC, M3nergy, SapuraCrest, Deleum and Tanjung Offshore) have been invited by Shell to bid for an EPCIC contract to supply a CEOR vessel for the St Joseph pilot project off Sabah. However, only two bidders remain Bumi Armada and Deleum.
Snapshot of 13 BDO & North Sabah oilfields to be developed
South Furious 30
Baronia BaroniaBarat Betty Bokor Tukau Sikau Siwa Bakau West Lutong
St. Joseph
EOR Project
Sabah
1. USD12b investment over 30 years 2. To develop 9 fields in the Baram Delta, Sarawak and 4 fields in North Sabah 3. To recover 756m bbl of oil or 90-100k bopd 4. To improve average recovery factor to 50% 5. To extend fields productive life to beyond 2040
Sarawak
Source: Maybank IB
(iii)
Tanjung Baram. Meanwhile, the Tanjung Baram EPS project, awarded to a foreign party, is running into complications and will likely miss the first oil production target (1,000-3,000bpd) set for Jul 2012. A re-tender could recur should the issue remain unresolved.
6 March 2012
Page 46 of 60
Bumi Armada
6 March 2012
Page 47 of 60
Bumi Armada
Financials
Registered robust profits in the past. Bumi Armada delivered a RM277m net profit in 2009 (+85% YoY), RM351m in 2010 (+25% YoY) and RM387m in 2011 (+10% YoY). These translate to a robust 3-year historical net profit CAGR of 37% (2009-11). Poised to break new ground. Looking ahead, we expect the earnings trajectory to continue its climb, at least over the next 3 years, on the back of stronger profits from all core divisions, namely FPSO, OSV and T&I operations. Set to enjoy strong and sustained growth. We project a strong 3year net profit CAGR of 25%, forecasting that Bumi Armada will deliver a net profit of RM532m in 2012 (+37% YoY), RM628m in 2013 (+18% YoY) and RM707m in 2014 (+13% YoY). Growth will be driven by: (i) 3 new FPSOs progressively coming onstream. We expect Bumi Armada to secure 3 FPSO contracts in 2012-13 (i.e. Malaysia, India and Angola). We expect the group to own a fleet of 8 FPSOs by end-2013, elevating it to becoming the fourth-largest FPSO operator worldwide by then. (ii) OSV expansion and higher utilisation rates. We project Bumi Armada will take delivery of 2 PSVs in 2012 and another 4 newbuilds in 2013-14. Expectation is for these new vessels to generate revenue of RM29m-RM213m p.a. in total, lifting OSVs topline by 6-28% respectively in 2012-13. In terms of utilisation rates, we expect a progressive step-up, from 79% in 2012 (+7-ppt YoY) to 83% in 2013 (+4-ppt YoY). Growth will largely be driven by higher charter days for its 8,000-12,000 bhp AHTS and PSVs. (iii) T&Is Dragon Oil contract and contributions from new vessels. In the T&I segment, we have assumed Bumi Armada will secure the Dragon Oil T&I contract in the Caspian Sea. Bagging this project will elevate utilisation of Armada Installer from 70% to above 90%. With Bumi Armada taking delivery of Armada Hawk in 2H 2011 and another SURF vessel by 2012 to participate in the IRM projects in Asia, we project growth of the T&I EBIT at RM184m-RM190m p.a. in 2012-14 respectively, and at RM117m in 2011 to (iv) OFS division is the wild card. With the delivery of the one-off Sepat FSO project, Bumi Armada aims to move to a recurring income business model via the Angsi SWRO vessel projects. We expect this project, to be awarded by 1H12, to generate EBIT of RM56m p.a.. Optimised earnings impact from 2015. Putting things into perspective, we expect Bumi Armada to enjoy the full effect of its underlying strong earnings-generating assets in 2015. This will notably come from the 3 new FPSOs, as the O&M charter rates kick in.
6 March 2012
Page 48 of 60
87 70 50 100 80 73 70 -
87 83 45 100 74 90 83 75 95
73 85 73 100 88 90 80 92 95
77 85 83 100 95 90 80 92 95
77 85 83 100 95 90 80 92 95
Not ruling out further upside potential. We do not discount the possibility of Bumi Armada adding another new small-to medium-sized FPSO beyond the projected 3 units, which would effectively lift its FPSO fleet size to above 8 units. In our modeling, we have also not imputed the expectation of any other production floaters (i.e. FSO). Overall, we opine Bumi Armada has the balance sheet, skill sets and appetite to undertake this. Has the ability for growth. Our forecasts suggest that Bumi Armadas net gearing level will range between 0.5x and 0.6x in 2012-14. This is below the internal threshold of 1.5x set by management. Hypothetically gearing up to 1.5x in 2012 could effectively lift borrowings by RM3.5b (i.e. 3-4 FPSOs). Has the balance sheet to take up another FPSO. We estimate that taking on the extra debt will still be sufficient for Bumi Armada to fund the expansion for a small-sized FPSO. As a benchmark, the capex to construct/convert a small-sized FPSO from a tanker (<80,000 bpd capacity) would range between USD300m-USD500m. The cost to modify an existing smaller unit is estimated at USD100m-USD250m.
Segmental breakdown
FYE Dec (RM m) Revenue - FPSO - OSV - T& I - OFS EBIT - FPSO - OSV - T& I - OFS Sources: Company, Maybank-IB 2010A 1,241.4 553.4 419.7 268.3 0.0 467.1 179.2 88.9 148.5 22.7 2011A 1,543.9 609.2 481.9 242.3 210.5 518.3 200.2 116.8 117.2 21.0 2012F 1,800.7 743.9 622.6 334.2 100.0 621.8 227.5 175.0 183.8 13.0 2013F 2,220.6 965.4 686.1 334.0 235.0 745.7 260.6 207.2 183.7 40.8 2014F 2,504.3 1,097.4 688.4 344.8 373.8 835.2 330.2 221.0 189.6 69.3
6 March 2012
Page 49 of 60
Bumi Armada
Significant capex going forward. Bumi Armada will spend heavily on capex (RM6.7b in total, in 2011-15) to fund its expansion programmes. As such, we do not expect significant dividend payout in the near term.
Bumi Armada: Capex profile
(RM b) 1.5
FPSO
OSVs
T&I
Others
RM6.7b
1.3
1.1 0.2
0.4
0.3
0.9
0.7 0.5
0.2 0.1
0.5
0.3
0.1
0.5
0.7
0.8
-0.1
2008 1.2
2009 1.4
2010 1.1
2011-14
Progressive dividend policy. Management intends to adopt a progressive dividend policy in determining the level of dividend payment, with the level of cash, gearing, debt profile, retained earnings, capex and investment plans to be taken into consideration.
Projected capex for FPSO orders: Capex to build/convert FPSOs varies widely, depending on unit size, complexity and application. Large FPSOs: A large 150,000+ bpd FPSO intended for use offshore Africa or Brazil can cost USD1b to USD2.2b. As benchmarks, capex for the Clov FPSO is USD1.8b, Usan USD1.6b, Pazflor USD2.1b and the P62 and P63 FPSOs are around USD1b. Given the expected mix of future orders of large FPSOs, the notional capex of USD1.2b is a reasonable average cost to build such a unit. Mid-size FPSOs: An 80,000-150,000 bpd unit can range from USD0.4b to USD1.4b. As benchmarks, capex for the P.C. de Itajai conversion is estimated around USD400m. Goliat, designed for harsh environment is USD1.1b, Quad 204 is USD1.3b. The notional capex of USD0.6b to build or convert or convert a unit and USD0.3b to modify/upgrade an existing vessel is representative of the average capex for midsize FPSOs. Small-size FPSOs: A >8,000 bpd unit can range from USD300m to USD500m. As benchmarks, the Chim Sao capex was USD400m. Cost to modify a smaller unit is around USD100m - USD200m. The cost to modify/ upgrade East Fortune for Berantai is about USD345m. Modifying/ upgrading Glas Dowr for Kitan is around USD120m-USD150m, the OSX1: USD200m. The notional capex of USD0.4b to build or convert a small FPSO and USD0.2b to modify/ upgrade an existing vessel.
Source: International Maritim Associates, Inc
6 March 2012
Page 50 of 60
Bumi Armada
Valuations
Target price: RM4.88. Our target price is based on a sum-of-parts (SOP) valuation. The FPSO, OSV, T&I and OFS (i.e. SWRO unit) operations are valued based on discounted cash flows (DCF), using a WACC of 4.5%. DCF is a reasonable method, in our view, considering that FPSO contracts are typically chartered out on a long-term basis (7 years + option period) while the OSVs, T&I and OFS vessels tend to see 1-8 year contracts. We value the OFS EPCC operations on price-earnings multiples. We ascribe a scrap value to their assets (i.e. FPSO, OSV, T&I and OFS) based on an estimated scrap steel tonnage. At our RM4.88 target price, Bumi Armada would be trading at 26.8x 2012 PER which is not excessive in our view, considering we are expecting a strong 3-year net profit CAGR of 25%.
SOP valuations
Terminal growth rate Division FPSO OSV T& I OFS Scrap value Net debt Total Source: Maybank-IB Value (RMm) 6,585 4,871 3,528 385 638 (1,760) 14,291 Value (RM/share) 2.25 1.66 1.20 0.13 0.22 (0.60) 4.88 Methodology DCF DCF DCF DCF on SWRO unit and 10x PER on EPCC FPSOs, OSVs, T&Is 2011
Key assumptions to our WACC estimate are laid out in the table below, where we have applied a 4.0% risk-free rate, 6.5% market risk premium and 1.0 beta. We have assumed a long-term: (i) 80:20 debtto-equity structure and (ii) cost of debt of 3.0%
Assumptions and basis used for WACC discount rate
Risk free rate Long-term cost of debt Market risk Beta Target capital ratio Debt / (debt + equity) Equity / (debt + equity) Wd We Ke Wc 80% 20% 10.5% 4.5% Target gearing 1 target gearing = Rf + (Rm Rf) = Kd (1-tax) (Wd) + Ke (We) Rf Kd Rm 4.0% 3.0% 10.5% 1.0 10-year government bond yield Average 3.0% effective interest rate (Maybank IBs forecast) Maybank IBs in-house assumption
6 March 2012
Page 51 of 60
Bumi Armada
7.7 6.3 5.4 44.7 12.1 10.2 Note: *Acquired Prosafe Productions in Dec 2010, 2011-13 net profit CAGR: 20%
6 March 2012
Page 52 of 60
Bumi Armada
Risk factors
Bumi Armadas wide ranging business profile opens the group to a broad spectrum of operational, geographical and environmental risk. Operating in multiple countries and compliance with additional local regulations may hamper operations and increase operating costs. Below is a non exhaustive list of the major risk factors confronting Bumi Armada. Oil price levels affect long-term investment plans. Oil majors investment plans are dependent on long-term oil price expectations, which can be affected by low and/or volatile oil price levels. We have seen oil field exploration/developments shelved when the oil price fell below USD50/bbl (average) in 2008, and there is no certainty this will not recur. Our economics team projects an average USD100/bbl crude oil price (WTI) in 2012 (2011: USD95/bbl). Currency fluctuations. Revenue from customer contracts, capex and operating cost is largely denominated in USD which do provide for some form of a hedge (but not in full). In addition, Bumi Armada reports results in RM, which leaves the group open to foreign currency movements especially fluctuations of the USD against the RM. We estimate that a 1 sen strengthening or weakening of the RM against the USD to impact bottomline by RM2m (with 0.4% of its earnings in RM). Financial leverage. Bumi Armada has and will maintain a significant level of leverage in line with the industry norm. Refurbishments are made before each redeployment of FPSOs and the vessels will require extensive repairs at regular intervals to meet the operating certification needed. High debt service and other contractual obligations will render Bumi Armada highly sensitive to any interruption in cashflows. Contractual requirements. FPSO contracts can encompass turnkey contracts for the vessels construction, conversion and refurbishment. Turnkey: FPSO conversions and refurbishment projects involve significant procurement of equipment, supplies and equipment. Risk include lack of supply of, or higher than expected cost of materials, equipment and manpower. Delivery: FPSO contracts have strict delivery schedules and failure to adhere to set dates could result in lower daily charter fees or even late penalties. Dependence on external parties: FPSO operators can be heavily dependent on vendors throughout the process, from equipment and manpower to even yard space. Cost overruns: Historical FPSO projects cost overruns were often tied to increases in price or requirements of manpower, fabrication materials (e.g. steel) or additional requirements or changes in orders from clients (VO). Unless protected by a price escalation clause, Bumi Armada may face reduced earnings or even losses.
6 March 2012
Page 53 of 60
Bumi Armada
Performance: Post deployment, the FPSO would be required to maintain a pre-agreed commercial uptime, technically possible operating days less allowance for maintenance and emergencies. Failure to meet the set targets could result in reduced charter fees, suspension of charter fees or even penalties being imposed. Early termination: Lease contracts are structured to provide the lessor with flexibility. Firm contracts are only offered for the estimated time required to exploit reserves but vessels have to be configured with the potential full period in mind. Should the termination of the contract occur and Bumi fail to redeploy the vessels on time, Bumi could suffer both reduced income and even impairment charges on its FPSOs External factors/events: This comprises weather and natural hazards (typhoons, tsunamis, etc), pirate attacks (more likely kidnap of crew and shutdowns versus hijacks) and policy changes of governments. Regulatory risks. As Bumi Armada operates worldwide, it must adhere to the offshore O&G industry regulations across multiple areas: Local content: Several emerging countries are attempting to boost local industries i.e. fabrication, process equipment, etc. by introducing local content clauses. This includes Nigeria, Angola, Brazil and Malaysia, which require portions of the system to be fabricated at the local facilities. Environment: Bumi Armadas single hull FPSOs cannot operate in a number of regions (North America and Europe) and the number of areas are set to increase. Aside from hull requirements, rules relating to waste storage and discharge, carbon emissions, etc. will have an impact on Bumi Armadas operating expenses. Cabotage: Bumi Armadas vessels (FPSOs and OSV) must comply with each countrys licences, permits and certifications. Failure to comply could result in fines or vessel seizure. For example, Nigeria requires annual renewal of all license and imposes fines of up RM300,000 per OSV.
6 March 2012
Page 54 of 60
Bumi Armada
Financial statements
INCOME STATEMENT (RM m) FY Dec Turnover Cost of goods sold Gross profit Other operating (exp)/inc. EBIT Net int (exp)/ Inc Associates & JV Exceptional gain/ (loss) Pretax profit Tax Minority interest Net profit Net profit ex EI EBITDA Sales Growth (%) EBITDA Growth (%) EBIT Growth (%) Effective Tax Rate (%) BALANCE SHEET (RM m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liab Shareholders Equity Minority Interest Total Cap. & Liab Share capital Net Debt Working capital Gross gearing
2011A 1,543.9 (883.1) 660.8 (142.5) 518.3 (109.2) 26.8 (27.7) 435.9 (70.6) (5.7) 359.7 387.3 845.1 24.4 18.1 10.9 16.2
2012F 1,800.7 (984.8) 815.9 (194.1) 621.8 (113.0) 56.3 0.0 565.2 (27.0) (6.0) 532.2 532.2 1,048.7 16.6 24.1 20.0 4.8
2013F 2,220.6 (1,226.2) 994.4 (248.7) 745.7 (138.2) 56.7 0.0 664.3 (30.8) (6.0) 627.5 627.5 1,272.6 23.3 21.4 19.9 4.6
2014F 2,504.3 (1,383.6) 1,120.7 (285.6) 835.2 (155.7) 67.7 0.0 747.2 (34.3) (6.0) 706.9 706.9 1,442.0 12.8 13.3 12.0 4.6
2011A 4,201.2 151.3 423.3 1,248.5 912.0 6,936.2 447.4 353.1 2,559.8 33.2 3,528.0 14.7 6,936.2 2,928.5 1,758.7 1,360.0 85.2
2012F 5,274.3 207.6 423.3 990.5 965.5 7,861.3 447.4 373.1 3,000.0 33.2 3,987.0 20.7 7,861.3 2,928.5 2,456.9 1,135.6 86.5
2013F 6,247.5 264.3 423.3 1,539.2 1,053.2 9,527.5 447.4 405.7 4,000.0 33.2 4,614.5 26.7 9,527.5 2,928.5 2,908.2 1,739.3 96.4
2014F 6,840.7 332.0 423.3 1,554.1 1,112.4 10,262.5 447.4 427.8 4,000.0 33.2 5,321.4 32.7 10,262.5 2,928.5 2,893.3 1,791.2 83.6
CASH FLOW (RM m) FY Dec Net profit Dep. & amortization Chg. In working capital Other operating CF Operating CF Net capex Chg in LT investment Chg in other assets Investment CF Net chg in debt Chg in other LT liab. Other financing CF Financing cash flow Net cash flow 2011A 387.3 326.8 (596.6) 212.6 330.2 (1,058.7) 0.0 (1,058.7) (1,167.6) (410.4) 2,218.5 0.0 1,808.1 970.7 2012F 532.2 426.8 (33.6) (50.3) 875.1 (1,500.0) 0.0 (1,500.0) (1,500.0) 440.2 (73.2) 0.0 367.0 (258.0) 2013F 627.5 526.8 (55.0) (50.7) 1,048.7 (1,500.0) 0.0 (1,500.0) (1,500.0) 1,000.0 0.0 0.0 1,000.0 548.7 2014F 706.9 607.8 (37.1) (61.7) 1,215.8 (1,200.0) 0.0 (1,200.0) (1,200.0) 0.0 0.0 0.0 0.0 15.8
RATES & RATIOS FY Dec Gross Margin (%) EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Interest Cover (x) Debtors Turn (days) Creditors Turn (days) Inventory Turn (days) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (x) Capex to Debt (%) N.Cash/(Debt)PS (sen) Opg CFPS (sen) Free CFPS (sen) 2011A 42.8 54.7 33.6 25.1 17.6 9.3 9.7 17.9 4.7 60.3 90.7 0.6 2.7 2.7 0.5 0.4 (60.1) 31.6 (24.9) 2012F 45.3 58.2 34.5 29.6 14.2 9.2 10.2 0.0 5.5 70.4 63.1 0.6 2.4 2.4 0.6 0.4 (83.9) 31.0 (21.3) 2013F 44.8 57.3 33.6 28.3 14.6 9.2 10.2 0.0 5.4 68.6 60.2 0.6 3.0 3.0 0.6 0.3 (99.3) 37.7 (15.4) 2014F 44.8 57.6 33.3 28.2 14.2 9.1 10.2 0.0 5.4 71.5 63.1 0.6 3.0 3.0 0.5 0.3 (98.8) 42.8 0.5
6 March 2012
Page 55 of 60
Bumi Armada
SECTION 4: APPENDICES
6 March 2012
Page 56 of 60
Bumi Armada
Non-Independent Non Executive Director Non-Independent Non Executive Director Chief Executive Officer
Source: Company
6 March 2012
Page 57 of 60
Sr. VP, Floating production systems Sr. VP, OSV Sr. VP, T&I
Adriaan Petrus Van De Korput Jonathan Edward Duckett Madhusudanan Madasery Balan Noor Azmi bin Abdul Malek Noval Davila Paredes Choong Guan Huat Source: Company
Sr. VP, Projects Sr. VP, Corporate planning Chief Talent Officer VP, BAE VP, Corporate HSEQ VP, Strategic Procurement
6 March 2012
Page 58 of 60
Bumi Armada
APPENDIX 1
Definition of Ratings
Maybank Investment Bank Research uses the following rating system: BUY HOLD SELL Total return is expected to be above 15% in the next 12 months Total return is expected to be between -15% to 15% in the next 12 months Total return is expected to be below -15% in the next 12 months
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the covera ge do not carry investment ratings as we do not actively follow developments in these companies.
Disclaimer
This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each securitys price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely ba sed on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other a dvice regarding the appropriateness of investing i n any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been indepe ndently verified by Maybank Investment Bank Berhad and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Berhad and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Berhad, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as anticipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward looking statements. Maybank Investment Bank Berhad expressly disclaims any obligation to update or revise any such forward lo oking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticip ated events. This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written cons ent of Maybank Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distrib ution, publication, availability or use would be contrary to law or regulation.
6 March 2012
Page 59 of 60
Bumi Armada
APPENDIX 1
Additional Disclaimer (for purpose of distribution in Singapore)
This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd ("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to conta ct KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 6 March 2012, KERPL does not have an interest in the said company/companies.
Published / Printed by
Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com
6 March 2012
Page 60 of 60