Investment Highlights

• We maintain BUY on Bumi Armada with an unchanged fair value of RM0.59/share based on a discount of 20% to the group’s sum-of-parts (SOP) of RM0.73/share, which also reflects a neutral ESG rating of 3 stars.

• Bumi Armada’s 49%-owned joint venture with Shapoorji Pallonji Oil and Gas Private Ltd has secured a licence agreement with the board of trustees for the Port of Mumbai (Mumbai Port) to set up, operate and maintain a floating storage and regasification unit (FSRU) in Mumbai harbour for 30 years.

• Under the agreement, the JV partners will have 270 days from the date of execution to secure financing, obtaining applicable permits for commencement of construction works and signing of the FSRU charter.

• At the end of the licence period, ownership of the infrastructure, which includes the pipeline and jetty, excluding the FSRU, will be transferred to Mumbai Port. Currently, the announcement does not provide details on the cost of the project nor the contract value.

• According to Upstream, Mumbai Port aims to commission an FSRU with a capacity of 5 million tonnes per annum (tpa) together with the supporting infrastructure such as berthing and mooring systems for the FSRU and LNG carriers, riser systems for gas send-out, subsea pipelines, landfall point facilities for metering station and dredging facilities.

• In a separate development, India’s first FSRU, Höegh Giant, with a 6mil tpa capacity and chartered on a 10-year contract with H-Energy, arrived at Jaigarh Terminal in Maharashtra on 12 April 2021 from Keppel Shipyard, Singapore.

• The 2017-built Höegh Giant has a storage capacity of 170,000 cubic metres and installed regasification capacity of 750 million cubic feet per day.

• Assuming that the FSRU costs US$300mil with a project IRR of 10%, 70:30 debt-to-equity ratio and WACC of 6%, we estimate that this JV could add 6% to Bumi Armada’s SOP of RM4.3bil and 5% to FY23F net profit.

• However, as the heavily-geared group may also need to raise its own portion of funding of up to RM200mil to support this project, we maintain our forecasts and valuations for now pending further details of the project.

• Valuationwise, we view Bumi Armada’s FY21 PE of 6x as unjustified vs. the FBMKLCI’s 17x as the group has significantly improved its core earnings since stabilising Armada Kraken’s operations.

Source: AmInvest Research - 20 May 2021