Investment Highlights

• We maintain our HOLD recommendation on Bumi Armada with an unchanged fair value of RM0.20/share, based on a 30% discount to our sum-of-parts (SOP) of RM0.33/share given the possibility of a highly dilutive equity-raising exercise to resolve a US$380mil (RM1.6bil) unpaid short-term loan together with an additional debt repayment of RM926mil scheduled for this year.

• While the likelihood of the equity-raising exercise could be heightened with Bumi’s JV with Shapoorji Pallonji Oil & Gas poised to secure the floating production storage and offloading (FPSO) vessel charter for the KG-DWN 98/2 deep-water project off India, management has affirmed that the group does not expect any equity capital required for this project.

• We believe this could mean transferring an existing idle FPSO such as Armada Claire into the JV structure while its partner contributes modification costs.

• Upstream Online reported that India’s Oil & Natural Gas Corporation (ONGC) has opened the commercial offer submitted by the Bumi-Shapoorji Pallonji JV, the only bidder for a lease and operate contract for the KG-DWN-98/2 FPSO charter, which could be worth over US$2bil at a day rate of US$745K.

• The Shapoorji-Bumi consortium was the only contender to have submitted technical and commercial offers for the FPSO in February, after Japan’s Modec pulled out of the bid process.

• ONGC is understood to be involved in talks with the ShapoorjiBumi consortium and is expected to finalise the award within weeks with the parties still negotiating on the pricing terms as ONGC’s budget is lower than the tender.

• Upstream reported that the tender process, which has already been delayed on several occasions, cannot be postponed any longer as most of the key contracts have been awarded for the KG-DWN-98/2 development.

• The project, which originally involved an FPSO capable of handling 90,000 barrels per day (bpd) of oil and 135 million cubic feet per day of gas, may have been revised to 50,000 bpd and its storage capacity from 1 million barrels to 700,000 barrels

• ONGC is offering a fixed-lease term of 9 years for the FPSO with an option for extension up to 7 years. First gas from KG-DWN- 98/2’s Cluster-2 development was initially targeted for June 2019 has been delayed to 2021 or 2022.

• Assuming a capex of US$300mil, a 50% equity stake, project IRR of 12% and WACC of 7%, we estimate that this charter could raise Bumi Armada’s SOP by 7% and FY21F earnings by 8%.

• The negotiations with Bumi’s financiers are expected to be resolved by the end of this month. Currently, the stock trades at a depressed FY19F PE of 5x against a backdrop of heightened balance sheet risks.

Source: AmInvest Research - 12 Apr 2019