Bumi Armada - Oversold attraction
Date: 29/03/2016
| Source | : | MAYBANK | ||||||||
| Stock | : | ARMADA | Price Target | : | 1.05 | | | Price Call | : | BUY | |
| Last Price | : | 0.78 | | | Upside/Downside | : |  +0.27 (34.62%) | ||||
An enticing entry price
Share price has fallen by 22% since 7 Mar 2016 as market confidence has taken a beating from the fallout of the FPSO Claire issue. We see this as an opportunity to accumulate, from a growth and valuation perspective. While the market has fully discounted the loss on FPSO Claire’s contract, it ignores any reimbursement potential. Also, the concern over the Kraken operations is overplayed. Reiterate BUY with a lower SOP-TP of MYR1.05 (MYR1.45 previously).Removing the FPSO Claire impact
Our revised earnings forecasts largely reflect “a worst case scenario” (i.e. total charter losses with zero compensation) from the FPSO Claire project (a 4+4 year charter, valued at USD890m). While this is a conservative stand, we do not rule out BArmada securing compensation from its Summons of Writ against Woodside. While we cannot quantify such impact for now, (i) any amount of value win or (ii) an out-of-court settlement would be positive to share price.Kraken is on schedule, on lower costs
The conversion of BArmada’s FPSO Kraken is on schedule; with a planned departure from dry-dock by Dec 2016 and first oil/hook-up and commissioning target by 1H17. The Kraken project, according to EnQuest, continues to make progress, having reduced field cost by 13% (USD435m) to USD2.8b to-date via its cost rationalisation initiatives. On paper, the project is commercially viable. Based on the 2P reserves of 140m boe (vs. total potential: 260m boe), the Kraken field’s cost/barrel equates to USD20/bbl and the FPSO capex cost is e.USD8/bbl.New MYR1.05 SOP-TP
We have cut 2016/17/18 earnings forecasts by 18%/29%/12%. Our revised TP excludes FPSO Claire’s NPV and imputes: (i) 100% NPV of its ongoing FPSO operations, 80% for its FPSOs undergoing conversion - Kraken, Angola, Madura (50%) and Malta (FSU), (ii) BV for its OSV and T&I ops, (iii) residual values for its FPSO/FSU assets, (iv) MYR7b net debt, (v) USD4.00:USD1.00 FX (3.40 previously).Source: Maybank Research - 29 Mar 2016
