Six More Years for TGT1

Bumi Armada (BAB) announced that FPSO Armada TGT1 has signed a six-year bareboat charter (BBC) contract extension with Hoang Long Joint Operating Company (HLJOC) with a contract value of US$285m (RM1.16bn). This is positive as there is a better visibility for FPSO TGT1, where the firm contract was originally set to expire by August 2018 and to be renewed on an annual basis. We reaffirm our BUY call with unchanged RM0.98 target price based on SOTP valuation. 2Q18 result is due to release on 30 August.

Contract Details

BAB has signed a six-year firm BBC contract extension with HLJOC (Vietnam) for the charter of FPSO Armada TGT 1, with a contract value of US$285m (RM1.16bn). This extension is expected to begin immediately from 27 August 2018, upon the expiry of the initial contract, and will last until 14 November 2024. TGT 1 has had a long working relationship with HLJOC over the past 7 years since achieving first oil in August 2011.

Positive on the Back of Longer Term Visibility

Looking at the earlier arrangement (prior to securing this contract), the extension would only be done every year over an 8 year period, upon the firm contract expiry in August 2018. However, we are more positive with this new contract as it will provide longer-term visibility on TGT1 earnings and cash flow. Based on a back-of-envelope calculation, the renewed BBC rate is estimated at US$127,232/day, which is ~40% lower than previously. Nevertheless, as FPSO TGT1 has been debt free since early-2018, the net impact will be ~30% lower, which is in line with our expectations.

Maintain BUY

We maintain our BUY call and target price at RM0.98, based on SOTP valuation. We remain bullish on BAB's 2H18 outlook underpinned by additional contributions from FPSO Olombendo and Kraken. However, we strongly believe that the next re-rating catalyst lies upon the final acceptance timing of FPSO Kraken. Key risks to our Buy call include: (1) weaker-than-expected OSV fleet utilisation, (2) termination of existing FPSO contracts.

Source: Affin Hwang Research - 6 Aug 2018