What’s New

• Bumi Armada received a notice from Erin Petroleum Nigeria Limited advising of a purported “Force Majeure Event” and requesting immediate shutdown of operations on the FPSO Armada Perdana. The company was also served a notice to seize the entire crude oil produced and stored in Armada Perdana in Nigeria.

Comment

• To recap, Bumi Armada had suspended operations on Armada Perdana in June 2017 after irregular payments from Erin but allowed to continue oil produced to flow into Armada Perdana and a one-off cargo intake by Erin.

• Following the latest development, Bumi Armada views that the notice is wrongful and is reviewing its legal options, including commencement of legal proceedings against Erin.

• Bumi Armada estimates a financial impact of credit risk recovery of RM30m for FY18.

Earnings Outlook/Revision

• Forecast reduced – We are slashing our FY18 EPS forecast by 4.5% to account for the latest development.

• Strong orderbook – Going forward, orderbook remains steady at RM22b with another RM12.5bn worth of potential extension. This will sustain the group’s earnings for the next few years with FPSO contracts ranging from 4 to 12 years.

Valuation & Recommendation

• Maintain BUY call with a lower target price of RM1.05 (previously RM1.10) based on FY18 EPS pegged to a 3-year mean PER of 13x.

Source: JF Apex Securities Research - 18 Apr 2018