Highlights/ Comments

• MISC and Bumi Armada are reported in the early stages to explore possible consolidation of FPSOs of both companies.

• MISC may inject its FPSO businesses into Bumi Armada in return of shares i.e. MISC may end up owning substantial stake in Bumi Armada.

• Below is the list of offshore portfolio of both entities:
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Valuation

• Based on DCF RM10.5bn Based on Share Price RM1.00 RM5.9bn Based on HLIB’s TP RM1.15 RM6.7bn Analy sts Daniel Wong Jason Tan

• Based on our estimated valuation, MISC may own up to 64.0% of the enlarged offshore entity (based on current Bumi Armada’s market capitalization of RM5.9bn) or 61% (based on HLIB’s TP: RM1.15 for Bumi Armada).

• At this juncture, we are relatively negative on the consolidation, given MISC will be exposed to the current downturn in global energy prices, as Bumi Armada has large fleets of OSVs and T&I assets.

• Nevertheless, the enlarged MISC group may extract long term benefits in terms of potential synergies for its 66.5% owned MMHE and Bumi Armada fleets. The enlarged offshore entity will be able to build up stronger financial arms (leveraging on MISC parent co) with joint expertise to bid for Petronas (MISC) and third party jobs (Bumi Armada).

Risks

• Oversupply of LNG, petroleum and chemical ships, depressing charter rates.
• Increase in bunker cost.
• Slow recovery of global economy.

Forecasts

• Forecasts unchanged pending completion of VTTI disposal.

Rating

BUY

Positives

• Resilient Petroleum tanker charter rate.
• Strong support from Parent Group, Petronas.

Negatives

• Continued oversupply of LNG and chemical tanker.
• Low order-book replenishment by MMHE.

Valuation

• Maintain BUY recommendation with unchanged Target price of RM10.06 based on SOP.

Source: Hong Leong Investment Bank Research - 9 Nov 2015