KUALA LUMPUR: CIMB Research has resumed coverage on Bumi Armada Bhd with an “add” with a sum-of-parts (SOP)-based target price of 92 sen.
“With two terrible years now behind it, Bumi Armada can look forward to better prospects,” CIMB said.
The research house said despite the ‘safety’ of long-term contracts, Bumi Armada suffered the non-payment of bareboat charters on the Armada Perkasa and Armada Perdana FPSOs from FY15, and the premature termination of the Armada Claire FPSO contract in FY16, as a consequence of the fall in oil prices, on top of specific reserve-related issues.
Bumi Armada also failed to deliver the Armada Kraken FPSO on time, and failed to achieve first oil by the backstop date, resulting in more than US$100mil in compensation payments to its charterer in FY16.
CIMB said Bumi Armada’s offshore marine services (OMS) business was also impacted by falling charter rates and falling utilisation rates since mid-FY14, ultimately delivering core EBIT losses from FY15 onwards.
“Both the OSV and T&I vessels were impacted, with both types of vessels at only 50% utilisation during FY16.
“Over the past three years, Bumi Armada made RM2.2bil in asset impairments and provided for RM325mil for doubtful debts across the floating production, storage and offloading (FPSO) and OMS segments, totalling 18% of BAB’s mid-2014 market capitalisation. However, BAB is now turning the corner,” it said.
During 1Q17, Bumi Armada delivered its best results in a year, with a core net profit of RM81mil.
“In future quarters, we expect a stream of progressively-better results, and positive newsflow in relation to its new projects – the Armada Olombendo, Kraken and Karapan Armada Sterling 3 – as they achieve final acceptance and begin their firm charter periods from 2H17 forecast.
“Bumi Armada is ‘very confident’ that the Kraken will achieve first oil before June 30, and
thus avoid further compensation provisions, with provision writebacks even possible,” CIMB said.
The Armada Claire is being offered for deployment to several operators of marginal fields while Bumi Armada is preparing to bid for ONGC’s KG-DWN-98/2 FPSO project.
Meanwhile, on the OMS side, the KP1 pipelay barge is being prepared for work in Indonesia during 2H17F.
CIMB said it has not factored any potential contract wins into its target price.
“If Bumi Armada wins the ONGC project, we believe that it will have to issue around RM1bil of new equity, most likely in the form of rights shares, to part-fund the capex.
“Another risk relates to whether the charter of the Armada Perdana FPSO might be prematurely terminated if Erin Energy cannot survive its cashflow crisis.
“We have taken these risks into account by factoring the dilutive impact of a potential rights issue into our target price, as well as by excluding the DCF value of the Armada Perdana charter from our SOP valuation,” CIMB said.
http://www.thestar.com.my/business/business-news/2017/06/08/cimb-resumes-coverage-on-bumi-armada-with-add-call/
