Suspending Services on Perdana FPSO

Bumi Armada (BAB) announced that its wholly owned subsidiaries, Bumi Armada (Singapore) Pte Ltd (BASPL) and Armada Oyo Limited (AOL) have issued a notice of suspension for the services currently provided to its client, Erin Petroleum Nigeria Limited. We maintain our earnings forecast as we have excluded Armada Perdana contribution from our model in our 3 years forward forecasts. Maintain BUY with unchanged TP of RM0.95.

Suspension, Not a Termination…

Effectively 21 June 2017, BAB announced that it will be suspending its services to Erin Petroleum Nigeria Limited on both operational and maintenance (O&M) services and the bareboat charter. However, BAB will continue to provide critical maintenance to mitigate the occupational health, safety and environmental risk. Recall that the contract for Armada Perdana is awarded for a 7 years firm period (expiring sometime in 2020) with an extension option for an additional 2 years. Contract value awarded then was approximately US$381m (RM1.3bn) for the firm portion, while 2 years extension option if exercised would be worth up to US$108m (RM360m).

… But Already Known by the Market

It is known to the market that Armada Perdana has not been contributing to revenue. Besides that, BAB has fully settled all the borrowings related to Armada Perdana. As such, there would not be any negative P&L impact from this suspension. BAB will continue to pursue the outstanding payment owed to them. Earnings upside could potentially arise in the event where any outstanding amount are recovered. Meanwhile, we maintain our earnings forecast as we have excluded Armada Perdana contribution from our model.

Valuation and Recommendation

We maintain our BUY call with unchanged TP of RM0.95. We continue to view the recent share price weakness a good buying opportunity in anticipation of likely positive news flow on the successfully delivery of Armada Kraken.

Risks

Key risks to our BUY call include: (1) weaker-than-expected OSV fleet utilization, (2) termination of existing FPSO contracts.

Source: Affin Hwang Research - 22 Jun 2017