Bumi Armada Bhd(April 22, 78.5 sen)
Upgrade to market perform with an unchanged target price (TP) of 80 sen: Last Thursday, Bumi Armada Bhd (Armada) filed and served a statement of claim in the Supreme Court of Western Australia against Woodside Energy Julimar Pty Ltd (Woodside) in relation to a contract for the charter of the Armada Claire floating production storage and offloading (FPSO) unit.
Under the statement of claim, Armada made a claim for damages, including a sum of US$275.8 million (RM1.07 billion), being the amount of the payment entitled upon termination, plus any additional damages for loss of bargain. An additional sum of US$7.7 million was sought for work done and materials supplied pursuant to the contract.
We believe the court proceedings could take up to at least six months to settle and possibly longer if things became more complicated.
An out-of-court settlement could be a better alternative for Armada to recoup a partial amount of the claim in a shorter time frame.
However, if Armada was able to claim the full amount of US$283.5 million, it would represent an additional 19 sen to our current TP of 80 sen, assuming an exchange rate of RM3.90/USD as we have taken out Armada Claire’s valuation from our valuation.
Meanwhile, we gather that Armada has settled the outstanding loan on the FPSO unit through internal funds. The vessel is currently sailing to Batam to be anchored pending redeployment options.
In our view, impairment risk is high given that the chance of deployment is relatively low in the current challenging market.
Four of its FPSO projects (Kraken, Olombendo, Madura and Malta) in the pipeline are on track with conversion in the shipyard, looking to sail away by July this year.
Both its offshore supply vessel (OSV) and transportation and installation (T&I) business segments’ earnings are expected to stay weak in the medium term in view of weak oil prices, which will cap oilfield exploration and development activities.
We upgrade to “market perform” from “underperform” as its share price has fallen 20% since the termination and we believe it has factored in all the negative news flow. Our sum-of-parts-driven TP is maintained at 80 sen.
A successful claim on Armada Claire could be regarded as a rerating catalyst. Upside risks include better-than-expected OSV and T&I segments, better-than-expected FPSO execution, and faster-than-expected recovery in oil prices. — Kenanga Research, April 22
ARMADA (5210) - Bumi Armada’s court proceedings could take six months
http://www.theedgemarkets.com/my/article/bumi-armada%E2%80%99s-court-proceedings-could-take-six-months
