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How Bumi Armada Is Riding The Boom In The FPSO Market
By: Brian Brinker
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By: Ong Qiuying
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The world-wide oil sector is expected to grow rapidly in the coming years. According to Douglas-Westwood, oil and gas activities are projected to grow by 26 percent per annum over the next six years. It is estimated that between 2013 and 2018 some 26,063 new wells will be drilled.

Expenditures on floating production systems (FPS) are expected to increase rapidly. Douglas-Westwood projects that US$99 billion will be spent on FPS from 2014 to 2018. This would represent a 138 percent growth from the preceding five-year period. Floating production storage and offloading vessels (FPSOs) is the largest type in the FPS market in terms of units installed and 80 percent of the capital expenditures (capex) forecast during the same period. Significantly, deepwater FPS deployments are expected to total US$68 billion in value from 2014 to 2018.

In terms of FPS, Latin America is currently projected as the hottest market, accounting for 29 of the projected installations and 38 percent of projected capex. Meanwhile, Asia and Africa are also up and coming in terms of projected installations and capex.

That is where Bumi Armada, which is an active player in all three of these markets, stands to benefit. It is worth noting that Bumi Armada is a major player in the African oil sector, which is among the fastest growing in the world. Consulting firm PwC estimates that Africa holds some 8 percent of the world’s oil reserves and 7 percent of the world’s natural gas supplies. Currently, Africa supplies 12 percent of the world’s oil and has been identified as one of the hottest regions for growth .

Company Profile

Bumi Armada is an international offshore oilfield services provider that is active throughout the oil and gas supply chain. The company is a leading floating production storage and offloading (FPSO) player and among top operators of offshore support vessels (OSVs) in Asia. The company provides services in oil field development and construction, production, and decommissioning.

The company operates in four key areas: FPSO, offshore support vehicles (tankers, etc.), transportation and installation, and oil field services. The company also provides support services in: asset management and operations, major projects, and engineering and technology.

Bumi Armada is headquartered in Kuala Lumpur, but has operations throughout Southeast Asia, Congo, India, Mexico, Venezuela, and the Caspian Sea. The company currently has 45 vessels and is looking to expand its fleet.

Financial Highlights

Bumi Armada has been enjoying steady sales and profit growth over the last few years and is set to enjoy even stronger growth in the near future as the company continues to expand its fleet and its involvement in major projects.

According to MayBank IB Research, in FY11, the company enjoyed sales of RM1,543.9 million. These sales grew to RM1,659.2 million in FY12 and RM2,073 million in FY13. By FY14 and FY15, the company’s sales are expected to reach RM 2,740.1 million and RM2,828.8 million respectively.

The company’s core net profits have been demonstrating a similar trajectory. In FY11, the company’s core net profits came in at RM387.3 million and by FY12 had reached RM394.9 million. In FY13 profits reached RM448.7 million and are projected to reach RM610.5 million and RM638.2 million in FY14 and FY15 respectively.

Key Developments

• Bumi Armada to host Offshore Well Intervention Conference from 15 to 16 April 2014 in Aberdeen (UK) to assist operators in the North Sea.
• Bumi Armada has secured US$381 million worth of contract extensions for its FPSO vessel in the Oyo field for seven years with an option to extend at US$108 million with US Camac Energy.
• As at 31 December 2013, Bumi Armada has a total order back log of RM22.1 billion, comprising of RM13.2 billion in firm contracts and RM8.9 billion in option extensions.
• Bumi Armada recently signed a US$140 million contract with Keppel Offshore group to acquire three new vessels for operations in the Caspian Sea. Two of the vehicles will be for supply operations, while the other vessel will be a multipurpose rescue vessel.
• The company recently expanded to Australia, sending FPSO vessel Armada Claire to work in the Balnaves Field off North West Australia. This will mark the first time the company will be operating in Australia.

Brokers’ Recommendations & Catalysts

Investment firms are confident in Bumi Armada’s prospects due to both the company’s strong position and the potential growth in the FPSO market. With the company looking to rapidly expand in a fast growing market, prospects are looking good. The company’s open price is currently at or near RM3.87.

AmResearch has set its target price at an optimistic RM5.15. AmResearch notes that the company recently acquired a 309,995 deadweight tonne vessel for under US$25 million, which is likely to be used for conversion into a FPSO, potentially costing US$1.5 billion for Eni’s Angolan project. AmResearch also notes that the company is actively bidding and/or involved in at least 11 projects .

Alliance Research has also issued a “Buy” for Bumi Armada, setting its target price at a more conservative RM4.43. RHB Research shares similar sentiments, optimistic that Bumi Armada is set to see its stock value rise, but setting a conservative target price of RM4.35.

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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