Investment Highlights

• We maintain our BUY recommendation on Bumi Armada with an unchanged sum-of-parts-based fair value of RM0.33/share, translating to a low FY20F PE of 6x vs. over 20x for the sector.

• The group has entered into an agreement to sell its whollyowned floating production, storage and offloading (FPSO) vessel Armada Perdana to Nigeria-based service provider Century Energy Services Limited (CES) for US$40mil cash. 29% of the purchase price will be offset against liabilities due to CES, 14% deposit, 13% in the 6 months after delivery of the vessel and the remaining 45% within 2 years of the vessel achieving first oil in the Nigerian field which it will be deployed. CES plans to redeploy the vessel to another field in Nigeria.

• Until the settlement of the unpaid purchase price, Bumi Armada will hold a mortgage over the FPSO. Meanwhile, the FPSO sale will clear the group from demobilisation obligations.

• Recall that this FPSO has been idle for over 2 years after Bumi Armada suspended its operations in June 2017 following irregular payments from financially distressed Erin Petroleum Nigeria Ltd, while continuing to store the oil already produced. In April 2018, Bumi Armada received a force majeure event notice from Erin to immediately shut down FPSO operations.

• The company was also served a notice to seize the entire crude oil produced and stored in Armada Perdana in Nigeria. In October 2018, Bumi Armada received notice that a manager in Nigeria will be appointed to oversee the sale and disposal of the crude oil stored onboard, which will be used to partially settle outstanding amounts owed to the group.

• This FPSO sale will generate a minor gain of US$5mil, which translates to 2% of FY19F group earnings. Since only US$28mil (RM119mil) will be secured as cash by the end of 2 years, we see negligible impact on Bumi Armada’s FY21F net gearing of 1.9x.

• We are not surprised and mildly positive on this development as management had earlier indicated that this FPSO was already in the process of being sold off. The group’s other idle Armada Claire, currently laid up in Batam, is being evaluated for a fresh charter for deployment as well as potential disposal.

• We expect further announcements to monetize the group’s offshore support vessels, given its low overall utilisation rate of only 50%, idle construction vessels and up to 40% stake in the fully operational US$1.5bil Armada Olombendo, deployed of Eni’s Block 15/06 off Angola.

• The group is planning to raise external financing for its equity portion of its 30% stake in the JV with Shapoorji Pallonji Oil & Gas to deploy an FPSO, potentially costing up to US$1.3bil, in ONGC’s NELP Block KG-DWN 98/2 Development Project ClusterII field off Kakinada, India. The stock trades at an undeserved FY19F PE of 5x currently against a backdrop of a sustainable earnings recovery and improving balance sheet risks.

Source: AmInvest Research - 10 Sept 2019