Journey to Wealth
Bumi Armada: Buying VLCC Despite Poor Outlook
THE BUZZ
Bumi Armada announced on Bursa Malaysia yesterday that its wholly-owned subsidiary, Bumi Armada Offshore Holdings, has acquired and taken delivery of one unit of a very large crude carrier (VLCC).
OUR TAKE
More about the deal. Bumi Armada bought its first oil tanker 'MT Osprey' (the VLCC, which is a supertanker), built by Japan's Sumitomo Heavy Industries in 1999, at a purchase consideration of USD29m. We understand that the deadweight tonnage (DWT) is as high as 300,000, which allows it to transport up to 2m barrels of oil.
Another FPSO contract on the plate? With the purchase of a VLCC, we believe that the company could be close to secure its next floating, production, storage and offloading (FPSO) contract as it would not make sense for the company to enter the shipping industry with persistent vessel overcapacity and high bunker prices weighing on VLCC spot prices.
Pricing seems fair in our view. We think that the USD29m price paid for the VLCC seems fair given the overcapacity in the market, as most owners would rather dispose of their vessels rather than keep them due to high docking costs.
Maintain BUY. While we believe that the company is poised to secure a new FPSO contract very soon, our earnings forecast are unchanged as we have factored in two new FPSO contracts in our financial model next year. Our FV for the stock remains unchanged at RM4.35, based on a sum-of-parts valuation.
Source: OSK
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