Another Step Closer

We remain confident that Bumi Armada (BAB) would see a strong uplift in earnings growth in 2018, mainly underpinned by FPSO Olombendo and Kraken. Both FPSOs are progressing well with final acceptances targeted by April and May, respectively. We reiterate BAB as one of our sector top picks with an unchanged SOTP-based target price of RM1.00.

Olombendo Targeting Acceptance by April

FPSO Olombendo’s final acceptance encountered a slight delay due to extended paperwork process in sourcing some equipment. Nevertheless, things are in place now with final acceptance confidently achievable before end April 18 (from the initial March timeline). Olombendo continues to recognise 90% of the full bareboat charter (BBC) rates in 3M18, and producing near 78,000bpd of oil. It currently contributes to the bulk of FPSO revenue, accounting for close to 60% in our 2018–2020 estimates.

Kraken: Final Acceptance Targeted by End-May

FPSO Kraken will undergo some final stage gas system commissioning these couple of months, before commencing the 72-hour final acceptance testing. Final acceptance is targeted by end May 18. Kraken is currently recognising around 80–90% of the full BBC rate based on interim agreement entered with EnQuest, and producing around 45,000bpd of oil, near the targeted 50,000bpd field production level. The planned maintenance shutdown of Kraken field in 3Q18, as guided by EnQuest is not expected to affect the FPSO’s BBC, as BAB will continue to be paid.

Perdana / TGT 1 / Claire

FPSO Perdana maintains its status quo, as it continues to see operations only covering O&M cost from offloading proceeds. Meanwhile, discussions are currently ongoing for FPSO TGT1’s firm expiry extension, which is expected to be finalised by mid–to–end of April 2018. BAB is expecting a clearer indication on FPSO Claire by 4Q18, concerning the legal case against Woodside.

Reaffirm BUY Call and TP of RM1.00

We reiterate Bumi Armada as one of our top sector picks (The comeback kid dated 27 March 2018). We believe the progressive FPSO acceptance as well as stronger earnings and cash flow deliveries will help drive the share price. We reaffirm our BUY and SOTP-based 12-month TP of RM1.00.

Source: Affin Hwang Research - 4 Apr 2018