Investment Highlights

• We maintain BUY on Bumi Armada with an unchanged sum of-parts (SOP) derived fair value (FV) of RM0.68/share (Exhibi 1). This implies a FY24F PE of 4.9x, below its 3-year averag of 7.5x. The FV also reflects our neutral ESG rating of 3-sta .

• Upstream reported that PT Armada Gema Nusantara, the join venture entity between PT CakraPrimaSatya (51%) and Bum Armada (49%), are in advanced discussions with Indonesia’s national oil and gas company Pertamina for the potential sal of floating production, storage and offloading (FPSO) vesse Karapan Armada Sterling III (KAS III).

• KAS III is currently operating in the Madura field, offshore Indonesia for client Husky CNOOC Madura Ltd. For reference the vessel was chartered at a contract sum of US$1.18bil on bareboat basis for a firm period of 10 years starting from 2017 followed by options for annual renewal of up to 5 years.

• The FPSO is the world’s largest hydrogen sulphid processing floating facility with a processing capacity o 110mil cubic feet of gas per day, 75k barrels of condensat and 20 tonnes per day of sulphur.

• Sources from Upstream indicate that purpose of the sale is to raise additional cashflow to facilitate construction of a new unit and may occur either in part through the divestment o PT CakraPrima Satya’s stake or in full.

• Based on a capex of US$500mil, a project IRR of 13.5%, 49% associate stake and a WACC of 6%, we estimate the ne present value contribution for KAS III attributable to Bum Armada at RM681mil. Against our estimated book value o RM602mil for the vessel, we expect the group to record a one off disposal gain of RM79mil- 9% of FY24F net profit. The los of this vessel’s earnings contribution could slightly trim FY24F group’s core net profit (CNP) by 5%.

• Additionally, the disposal proceeds could reduce the group’s FY24F net gearing to 24% from 34%. We do not think sale o the asset is necessary as Bumi Armada has already undergone many consecutive quarters of degearing reducing its net gearing position from 2.1x in 1QFY21 to 0.65 as at 4QFY23, we believe this may help in managing its cashflow position given the significant amount of financing liabilities in the near term.

• Recall that the group had recently reclassified severa facilities due within the next 12 months, raising its borrowing under current liabilities to RM2.3bil. Management updated that the group expects to finalise the refinancing option for a RM1.

• We continue to like Bumi Armada due to our bullish outlook on the FPSO subsector and believe this is the year of execution against the backdrop of a sequential improvement in the group’s sustainable core earnings and an improving balance sheet. Valuation-wise, we see potential upside in Bumi Armada in view that it is trading at undemanding FY24F PE of 3.8x versus the FBM KLCI's 15x.

Source: AmInvest Research - 7 Mar 2024