• We maintain BUY on Bumi Armada with an unchanged sum-of-parts (SOP) derived fair value (FV) of RM0.68/share which implies a CY24F P/E of 5x, below its 3-year average of 6x. Our FV also reflects a neutral ESG rating of 3 stars (Exhibit 2).

• India’s Oil & Natural Gas Corporation (ONGC) announced that it finally achieved first oil from the M-field in deep-water KG-DWN-98/2 block on 7 January after experiencing a 1- year delay from technical challenges due to the waxy nature of the crude and subsequent severe damage to subsea umbilical and manifolds infrastructure. Additionally, related fields A & P is also likely to be brought online at a later stage, according to Upstream.

• Pursuant to a vessel acceptance test which is expected to take up to 3 days, this marks the commencement of oil production for FPSO Armada Sterling V, owned by the 70:30 JV between India’s Shapoorji Pallonji Energy and Bumi Armada.

• Recall that the FPSO arrived at KG-DWN-98/2 and successfully hooked up with the buoy mooring system in December 2022. Since then, the vessel remained in idle status and received in-lieu standby payments since March 2023. Though the group did not disclose the quantum of the payments, we understand that standby rates typically range between 50% to 70% of daily charter rates.

• We positively view the development which confirms the start of charter rate payments for FPSO Armada Sterling V in FY24F. This is in line with our expectations which incorporates contribution from JV and associates, projected to rise by 29% YoY, driven primarily by FPSO Armada Sterling V.

• Valuation-wise, Bumi Armada is trading at a compelling FY24F PE of 4x vs. the FBM KLCI's 1-year forward PE of 13x. This is unjustified given the group’s recurring and sustainable earnings stream from FPSO operations as well as an improving balance sheet.

Source: AmInvest Research - 9 Jan 2024