Bumi  Armada  announced  the  establishment  of  a  MYR1.5bn  sukuk programme  yesterday,  mainly  to  finance  anticipated  high-capex projects  that may involve floating liquefied natural gas  unit.  Based on our calculation, we  believe  this is still not sufficient to qualify the stock as Syariah-compliant.  However, we reiterate our BUY call with our SOP based FV at MYR4.54, as we like its long-term earnings visibility.

• Establishes  MYR1.5bn  sukuk  programme.  Bumi  Armada,  along  with wholly  owned  subsidiary  Bumi  Armada  Capital  Malaysia  SB  (BACM), announced  that  the  group  has  begun  the  documentation  process  to establish  an unrated  sukuk  programme, which is nominally valued at up to MYR1.5bn  under the Syariah  principle of murabahah  via the tawarruq arrangement.  The  proceeds  raised  will  be  mainly  used  to:  i)  finance capex  and  opex,  and  ii)  refinance  the  group’s  current  debts   which include  Islamic financing. BACM has the flexibility to raise funds via  the issuance of sukuk murabahah from time to time with varying tenors.   
• Positive move.  Bumi Armada  had proposed  a rights issue in late May, which  was mostly meant to finance future floating production, storage  & offloading (FPSO) projects. Its management  had stated that it  would not need to  raise  further  equity  finance  in  the  next  2-3  years  to  undertake future  projects.  We  believe  the  issuance  of  sukuk  supports management’s stance and eliminates fears over more earnings dilution.    
• Syariah status.  In our opinion, the  sukuk  programme is not enough to turn it  into a  Syariah-compliant stock  during  the  revision of the  Syariah compliant  list  of  counters  in  November.  There  is  no  clear  allocation  of funds  for  capex  and  debt-refinancing. We  believe  most  of  the  amount raised will be utilised for capex to support its ambitious tender exercise.
• Maintain BUY with  a  FV  of MYR4.54.  We leave our FY14/15 earnings estimates  unchanged. We  reiterate  our  BUY  recommendation  with  our unchanged  SOP-based  FV  of  MYR4.54  implying  a  FY15  P/E  of  22x  –which is in line with  some of the big-cap names under our coverage that are  trading  at  14-29x.  We  still  like  the  long-term  nature  of  the  FPSO contracts that provide similarly long-term earnings visibility. We leave our gearing assumption of 0.75x/0.81x for FY14/15 unchanged. It is still  at a comfortable  level  as  its  management  has  always  stressed  on maintaining gearing at 1.0x and below. 

Source: RHB