Investment Highlights

• We reiterate BUY on Bumi Armada with an unchanged sum-of-parts (SOP) based fair value of RM0.86/share. Our fair value also reflects a neutral ESG rating of 3 stars.

• Bumi Armada has completed the disposal of wholly-owned Armada Claire floating production storage and offloading (FPSO) for US$20mil (RM89mil). We note that the sale proceeds were received earlier on 19 April 2023.

• Recall that Armada Claire FPSO was converted from a 1993- built tanker by Keppel Shipyard back in 2013. The floater unit is equipped with an oil production capacity of 30K barrels of oil per day and a storage capacity of 800K barrels of oil.

• The FPSO previously worked on a long-term charter for Woodside Energy’s Balnaves oilfield offshore Western Australia, which was prematurely terminated by the client in 2016 due to performance-related issues.

• In 2QFY23, the group is expected to book in a gain on disposal of the FPSO amounting to US$12mil (RM53mil), 6% of FY23F earnings. We also gather that the group will earmark the sale proceeds mostly to pare down debt to further strengthen its balance sheet.

• Hence, we estimate that the group’s net gearing ratio could improve further to 0.64x by end-FY23F (from 0.91x as at endFY22) on the back of the disposal proceeds from Armada Claire and potentially the remaining single unit of offshore support vessel coupled with the group’s resilient operating cash flows.

• We also remain upbeat on Bumi Armada’s near-term outlook as the group could secure the engineering, procurement, construction and commissioning contract with a potential value of at least US$1bil for TotalEnergies’ Cameia project over the coming months. In addition, the group is also actively bidding for other FPSO projects as well as some subsea pipelay jobs in the Caspian Sea.

• Valuation-wise, we see more potential upside for Bumi Armada in view of its FY23F PE of only 5x vs. the FBM KLCI's 13x. This is underpinned by a substantive orderbook of RM20.9bil at the end of 4QFY22 (including optional extensions), which translates to a comfortable 8.7x of FY22 revenue.

Source: AmInvest Research - 26 Apr 2023