Investment Highlights

• We maintain our BUY recommendation on Bumi Armada with an unchanged sum-of-parts-based fair value of RM1.22/share, which implies an FY19F PE of 14x vs. the sector’s over 20x currently.

• However, we have slightly raised our FY19F-FY20F earnings by 3% as the charter extension for the group’s floating production, storage and offloading vessel (FPSO) Armada TGT 1 was 40% above our earlier assumption, partly due to foreign exchange changes since the original award.

• Bumi Armada has signed a 6-year charter extension worth US$285mil for its FPSO Armada TGT 1, which is deployed on the Hoang Long Joint Operating Company’s Te Giac Triang field off Vietnam for a firm period from 27 August 2018 to 14 November 2023.

• The Armada TGT 1 was originally chartered on a firm sevenyear bareboat charter worth US$700mil that is due to expire on 26 August this year, with an option for 15 annual extensions.

• While the extension charter value is half the value of the initial charter as the vessel’s debt would have been fully repaid, it is still higher than our earlier conservative estimates.

• The Te Giac Trang field is in Block 16-1 in the Cuu Long basin. Hoang Long partners are PetroVietnam E&P with 41%, Soco on 30.5% and Thailand's PTTEP on 28.5%.

• The risk profile of the group is improving with its clientele’s upcoming albeit belated final acceptances of the FPSO vessel Olombendo and Kraken.

• Additionally, Upstream had earlier reported that Bumi Armada has emerged as the front-runner to land the charter for a huge FPSO, which could cost over US$1bil, for Eni’s Zabazaba project off Nigeria in in the OPL 245 field.

• Assuming that the capex for the FPSO is similar to Olombendo's US$1.5bil in Angola with a project IRR of 11%, we estimate that Bumi Armada's SOP could be raised by 11 sen or 10% to RM1.34/share, if the charter was successfully secured.

• The stock currently trades at a compelling FY18F PE of 9x vs. the sector’s 20x with near-term earnings recovery in the horizon.

Source: AmInvest Research - 6 Aug 2018