https://www.offshore-energy.biz/oeec-ccs-will-employ-as-many-people-as-oil-gas-at-its-peak/

Reducing our target price ■ 9MFY1/25 core net profit made up only 46% of our full-year forecast due to EPCIC losses, higher overheads, and higher interest expense in 3QFY25. ■ We retain Add but with a modest 15% upside to our SOP-based end-CY25F TP of RM3.09, reduced from RM3.61 on faster-than-expected cash burn rate. ■ The key rerating catalyst is our expectation that Yinson will announce a c.US$1bn cash-raising exercise in early-Jan 2025F to fund its growth plans.

Unexpected core net loss of RM16m in 3QFY25 (Aug-Oct 2024) Yinson unexpectedly reported a 3QFY25 core net loss of RM16m (vs. 2QFY25’s core net profit of RM133m), which was below expectations due to EPCIC loss and higher corporate overheads. Yinson booked in an EPCIC operating loss of RM62m in 3QFY25 against an EPCIC operating profit of RM373m in 2QFY25 as 1) Yinson’s three construction projects already reached a high percentage of completion, leading to lower EPCIC revenue and profit recognition; 2) Yinson incurred full operating costs for the FPSO Maria Quiteria in the run-up to first oil on 15 Oct 2024; and 3) first oil for the FPSO Atlanta was delayed from the original target date of Sep 2024 due to the strike at IBAMA (Brazil’s environmental agency) in Jun-Aug 2024, causing Yinson to incur full operating costs without being able to book in any revenues. Meanwhile, Yinson’s corporate overheads rose from RM67m in 1QFY25 to RM89m in 2QFY25 and further to RM102m in 3QFY25 as it continued to invest and spend on capacity building and on various growth projects for the future. The 3QFY25 core net loss would have been much wider if not for Yinson booking in RM314m in “finance lease receivable (FLR) remeasurement gain”. Yinson reported a 3QFY25 net profit of RM200m, mainly because of RM181m in exceptional gains (details on page 3). Heavy interest expense burden may result in FY26F core net loss We expect Yinson to deliver a small core net profit in 4QFY25F of RM7m as the EPCIC loss for the FPSO Atlanta will likely continue into the quarter given that Yinson only expects it to achieve first oil in late-Dec 2024F. With the FPSO Agogo already 80% completed as at 31 Oct 2024 (sail-away from the yard targeted for Feb-Mar 2025F), we also do not expect significant EPCIC contributions from the vessel in 4QFY25F or in FY26F. We have relooked our forecasts for FY26F, which we now cut to a core net loss of RM262m vs. a core net profit of RM217m previously. Although we forecast Yinson to report RM2.3bn in FPSO charter-hire operating profit in FY25F (vs. RM2bn in FY24F including RM314m in FLR remeasurement gains), we also expect Yinson to incur RM0.4bn in corporate overheads and RM1.8bn in interest expense in FY26F (up from RM1.7bn in FY25F), which will consume most of next year’s group operating profit, with another RM0.3bn of taxes and RM0.2bn of minority interest to be deducted in order to arrive at the bottomline. Given the earnings trajectory for FY26F, we expect Yinson’s share price upside to be more limited than our previous expectation; hence we reduce our TP to RM3.09, although we retain our Add call for the potential rerating catalyst of the c.US$1bn fund raising exercise in earlyJan 2025F. Downside risks include delays in first oil target of late-Dec 2024F for the FPSO Atlanta and delays in execution of the FPSO Agogo project.

CGS has projected losses for yinson in fy2026

https://www.sinchew.com.my/?p=6148147

Translate accrodingly

Previous management

RHB maintained

UOb 65c

Cgs. 78c

4Q24F may deliver forex gains, vs. forex loss in 3Q24 3Q24 core net profit of RM211m fell 20% qoq, mainly due to RM44m in unrealised forex translation losses as the US$ had depreciated from RM4.72 as at 30 Jun 2024 to RM4.12 as at 30 Sep 2024. Another reason was because of the lower qoq share of associate profits, since BAB had only begun depreciating the FPSO Armada Sterling 5 from 1 Jul 2024 when it had achieved first oil; in the immediately preceding 2Q24, BAB had recognised charter receipts from the FPSO but had not yet started depreciating the asset. Still, we expect BAB to deliver on our FY24F core net profit forecast of RM1bn, as the US$ has appreciated against the ringgit this quarter, and BAB should be able to book-in forex translation gains in 4Q24F. Our reported net profit forecast for FY24F, on the other hand, has been reduced by 25%, as we pencil-in a RM250m impairment of the FPSO Kraken, with BAB already flagging the necessity for impairment over the past two quarterly results briefings. As the impairment is a non-cash accounting charge, there is no negative implication for our DCF valuation of the FPSO’s cashflows. Nevertheless, this is a near-term downside risk to the stock, as some investors may still perceive the likely 4Q24F impairment negatively. FPSO Kraken impairment in 4Q24F already flagged; no cash impact One of the key reasons why we have reduced our FY25-26F core net profit forecasts by 21-27% is because BAB decided to accelerate the depreciation of the FPSO Armada Sterling 5, such that the majority of the asset’s book value will be depreciated by the end of its 9-year firm charter period. If BAB had adopted its usual policy (which we had previously used for our modelling), it would have depreciated the asset over its 16-year charter period, which includes the 7-year option period. We note that the cashflows from the FPSO Armada Sterling 5 remain intact, hence there is no impact to our DCF valuation of the FPSO, even though the accelerated depreciation means that the FPSO will contribute a small net accounting loss to BAB in FY25F. Consequently, our core net profit forecast for FY25F is now 21% lower than our previous forecast, and in fact, a steep 67% lower than our forecast for FY24F. The yoy drop in FY25F core EPS is on account of the FPSO TGT-1 transitioning to a lower daily charter rate (DCR) since 15 Nov 2024, and the FPSO Kraken moving to its lower-DCR option period from 1 Apr 2025F. However, all this has been reflected in our SOP-based target price, and we think that BAB’s share price remains undervalued against that. The proposed merger with MISC’s offshore unit is a potential rerating catalyst, as it may unlock the valuation of BAB to better reflect what we believe to be its underlying fundamental valuation. Reiterate Add.

The company also announced that it has decided to terminate a rig contract with Dolphin Drilling at its Kraken oilfield after joint venture partners were unable to agree on a 2025 asset drilling programme. This will cost the company $14.6m but reduce 2025 planned capex by $60m.

How long the current field will last?

https://theedgemalaysia.com/node/734686

Keep BUY, new MYR0.73 TP from MYR0.70, 36% upside. After updating the ESG scoresheet for the energy sector stocks under our coverage, we raise our ESG score for Bumi Armada to 2.9 from 2.7 – and adjust our TP accordingly. We favour Bumi Armada for its dedication to emissions tracking, strong waste management practices, and commitment to achieving net zero by 2050. • The positives. Since the launch of its Net Zero by 2050 target last year, Bumi Armada has made substantial strides in its sustainability efforts. The company has a strong focus on monitoring and aligning GHG emissions with reporting principles, enabling a more robust understanding of its Scope 1 and 2 emissions as of 2023, following alignment with GHG protocol classifications. Additionally, the group’s recent decline in overall emissions and its effective waste management efforts stand out as notable achievements in its sustainability journey. • Areas of improvement. In its FPSO operations, Bumi Armada reported 128.7 tCO2e per thousand tonnes of production for Scope 3 emissions, a level slightly above the International Association of Oil & Gas Producers or IOGP baseline for 2022. However, we note that the group has ongoing efforts to support clients in identifying Scope 3 reduction opportunities. Regular updates on its low carbon and/or renewable energy (RE) initiatives as well as a clear set of medium-term goals would provide greater clarity and confidence in its move towards achieving net zero. Enhancing the transparency and frequency of reporting on these fronts could also strengthen its alignment with global standards and investor expectations. • ESG score update. Reflecting its recent advancements, Bumi Armada’s ESG score has been raised to 2.9 from 2.7. We are upbeat on its comprehensive emissions tracking, which includes Scope 1, 2, and 3 emissions, as well as intensity metrics. This level of detailed reporting enhances transparency and is in line with best practices, reflecting a robust commitment to achieving its net-zero target by 2050. Additionally, the group’s strong waste management practices support its broader sustainability goals.

EGM is required. Price may not be low

Another report from CGS

MISC could have a 66.7% stake in the Merged Entity (‘ME’) ● This is a follow-up report to the one we issued earlier today, where we estimated that MISC (Add, TP: RM8.97) may end up with a 76% stake in the merged entity (‘ME’) once MISC sells its Offshore Business Unit (OBU) to BAB in exchange for new BAB shares. This calculation is based on our internal RM15.3bn DCF valuation of MISC’s OBU and a RM4.7bn SOP valuation of BAB based on our target price of 79 sen, which will result in a combined valuation of RM20bn. ● Our RM15.3bn DCF valuation for MISC’s OBU above does not deduct for any debt associated with the OBU for two reasons. First, MISC’s FPSO Mero-3 was constructed at a cost of RM9bn, funded entirely by MISC’s internal cash with no external debt. Internally, the holding company, MISC Bhd simply extended an intercompany loan to the subsidiary that owns the FPSO Mero-3. Second, MISC had fully repaid the GumusutKakap semi-submersible’s RM3bn project financing debt in 2022, using proceeds from the issue of US$1bn Global Medium Term Notes issued in Apr 2022 (US$400m due in Apr 2025F; US$600m due Apr 2027F). These are the only two significant offshore assets at MISC’s OBU, and we think that the rest are debt free. ● However, MISC may impute some level of borrowings into its OBU before merger with BAB. We assume that Gumusut-Kakap will have a remaining debt of RM500m as at 31 Dec 2025F as if the project financing had not been repaid in 2022, while we impute a debt of RM5.4bn for the FPSO Mero-3 assuming 60% debt funding against its RM9bn asset cost. This implies a total debt of RM5.9bn to be deducted from its DCF-to-firm valuation of RM15.3bn, resulting in a DCF-to-equity valuation of RM9.4bn of MISC’s OBU, in our estimate. This suggests a combined ME equity valuation of RM14.1bn, comprising MISC’s OBU at RM9.4bn and our valuation of BAB’s at RM4.7bn; hence, MISC may end up with a 66.7% stake in ME based on our calculations. As such, Objektif Bersatu Sdn Bhd’s (OBSB, unlisted; ultimately owned by tycoon Ananda Krishan) stake could be diluted from 34.6% in BAB to 11.5% in the ME. Implications: No mandatory general offer (MGO) for BAB ● According to the Malaysian Code on Take-Overs and Mergers 2016, MISC is obligated to make an MGO for the rest of BAB that it does not own once it passes the ownership threshold of 33% via the merger transaction. However, we suspect that the MGO will not happen if MISC can convince the Securities Commission that OBSB is committed to remain invested in the ME and that OBSB will decline to tender its shares in the event of an MGO for the ME. Since OBSB may hold 11.5% in the ME, according to our calculations above, an MGO could fail to cross the minimum threshold of 90% under the circumstances that we have described above. This will tally with the stated intention of MISC and BAB to keep the ME listed. BAB’s share price reacted favourably to the news ● BAB’s share price rose 7% to 53.5 sen at market closing today. This reaction is justified as the potential merger could unlock value at BAB, since the valuation of BAB in the merger may be higher than the current BAB market cap of RM3.1bn, in our view. Also, the ME will have a strong parent company in MISC, majority-owned by Petronas (not listed), and which has deep pockets to fund growth at the ME, in our view. BAB may also benefit from cost and technical synergies with MISC. Also, BAB’s shareholders can benefit from the profit and cash contribution from MISC’s FPSO Mero-3 that can help offset reduced cashflows from BAB’s FPSO Kraken in FY25F. All the above are potential rerating catalysts for BAB, even though an MGO for BAB is unlikely, in our view. ● The key downside risks are if the valuation for MISC’s OBU in the merger transaction is higher than expected, or if BAB’s valuation is lower than expected.

BAB and MISC MOU to explore merger of offshore businesses… ● BAB and MISC (Add, TP: RM8.97) announced to Bursa on 14 Nov 2024 that both parties have signed an MOU and will over the next nine months explore a merger of MISC’s Offshore Business Unit (OBU) with BAB in an all-share transaction. We theorise that MISC may inject its OBU into BAB in exchange for new BAB shares. Our target price for BAB implies a RM4.7bn valuation (vs. its market cap of RM3bn) while we value MISC’s offshore business at RM15bn. Combining the two entities at these valuations, we calculate that MISC will end up with a 76% stake in the merged entity (ME) while Objektif Bersatu Sdn Bhd’s (OBSB, unlisted; ultimately owned by tycoon Ananda Krishnan) stake will be diluted from 34.8% in BAB to 8.3% in the ME. ● MISC may be obliged to execute an MGO for the ME, according to the Malaysian Code on Take-Overs and Mergers 2016, but if OBSB publicly announces that it does not intend to accept the MGO, there is a chance that MISC may not cross the compulsory acquisition threshold of 90%, in our view, which fits in well with the stated intention of both MISC and BAB to keep ME listed. As such, assuming the merger is completed, we expect MISC to place out shares in ME to ensure adequate free float. … which could help BAB unlock value ● A potential merger with MISC’s OBU is likely positive for BAB shareholders, assuming that the valuations of the OBU and of BAB itself will be fair and reasonable. We believe that BAB is worth 79 sen while BAB’s BVPS is even higher at RM1.05; BAB’s current share price of 50 sen appears to undervalue the company. The potential merger, if it happens, may unlock the valuation of BAB to better reflect what we believe to be its underlying fundamental valuation. ● How will this valuation unlocking happen? First, the valuation of BAB in the merger transaction may be higher than the current BAB market cap of RM3bn, in our view, which could send a signal to the market. Second, the ME will have a strong parent company in MISC, which is majority-owned by Petronas (not listed), and which has deep pockets to fund growth at the ME. Third, BAB has plans to offer carbon capture and storage solutions in the UK North Sea via a JV named Bluestreak with shipping company Navigator Holdings (NVGS US, Not Rated, US$16.26) and with Uniper (not listed) as a potential customer. BAB also has plans to offer floating liquefied natural gas (FLNG) solutions to monetise gas resources at the Madura gas fields, offshore Indonesia. However, since BAB’s growth plans were unveiled in 2023, the market has given very little credence to those plans because BAB never discussed how those expensive projects were to be financed. But, with potential financing from MISC, the ME may have the opportunity to actualise the projects. If the market gains confidence that the ME will be able to generate growth and that it has access to equity capital to fund that growth, the undervaluation of BAB may give way to a more respectable valuation at the ME. ● From an operational perspective, BAB may also benefit from the combination of technical and engineering resources at MISC’s OBU, which may yield cost synergies since both are mid-sized floating production storage and offload (FPSO) companies. Post the merger, BAB’s shareholders could enjoy the incoming earnings and cashflows from MISC’s FPSO Mero-3, which achieved first oil and final acceptance from its client Petrobras (PBR US, Not Rated, BRL37.20) around 30 Oct 2024. This may help offset the steep drop in BAB’s earnings in FY25F as BAB’s FPSO Kraken will see its daily charter rates decline 70% from 31 Mar 2025F when the firm charter period ends. All the above are potential rerating catalysts for BAB. ● The key downside risks are if the valuation for MISC’s OBU in the merger transaction is higher than expected or if BAB’s valuation is lower than expected.

From CGS

KUALA LUMPUR (Nov 15): The proposed merger between Bumi Armada Bhd (KL:ARMADA) and MISC Bhd’s (KL:MISC) offshore businesses is expected to result in MISC holding a 68% majority stake in the new entity, with a combined valuation of RM14.6 billion, according to CIMB Securities.

CIMB’s estimate is based on MISC's offshore business valuation of RM10 billion at the equity level, compared to Bumi Armada’s valuation of RM4.6 billion, the research firm stated in its note on MISC on Friday.

“We view the immediate focus post transaction will be on integration and extracting synergies from the merger. Should this merger materialise, it could generate operational synergies for the combined entity,” it said. “The new entity would be well positioned to strengthen its presence in European regions such as the UK North Sea. Furthermore, it would expand opportunities in other promising markets, including Brazil and Angola”.

While specifics on the shareholding structure of the new entity remain undisclosed, analysts are largely neutral on the deal, highlighting several downside risks.

These include the complex integration of business models, systems and processes, higher merger-related costs, potential regulatory hurdles that could delay or disrupt the memorandum of understanding (MOU), and external challenges such as market uncertainty and geopolitical tensions.

“At this juncture, the possibility of a termination is still in the decks, although we opine that, given the longer period to continue discussions, both parties would find ways to mitigate the risks, while ensuring that stakeholders will continue to reap the benefits from MISC’s dividend play,” MIDF Investment Bank wrote in a separate note.

On Thursday, MISC and Bumi Armada announced the signing of a nine-month, non-binding MOU to jointly explore a potential share-based merger of MISC’s offshore business with Bumi Armada. Under the proposed merger, MISC would transfer its offshore business to a new entity in exchange for shares in that entity through a share swap arrangement.

For MISC, the merger will only involve its offshore business that owns, leases, operates and maintains offshore, floating, production, storage and offloading (FPSO) terminals. MISC mainly ships liquefied natural gas (LNG) as well as operates a fleet of petroleum tankers. MISC was previously considering a stake in Bumi Armada, The Edge reported in July.

MISC’s shares fall as earnings miss expectations
Shares of MISC Bhd declined on Friday after the group’s latest earnings, for the period ended Sept 30, 2024, fell short of analyst expectations, mainly due to weaker-than-expected performance in the gas and asset solutions division, affected by soft LNG spot rates.

The stock dropped by as much as 27 sen, or 3.4%, reaching RM7.68 during morning trade. The counter was trading at RM7.65 at the time of writing, giving MISC a market valuation of RM34.15 billion, with around 262,300 shares traded.

Kenanga Research noted that MISC's core net profit for the nine months ended Sept 30, 2024 (9MFY2024) — adjusted for non-recurring items such as a RM26.5 million unrealised forex gain, a RM44.1 million gain on other investments, and a RM66.7 million impairment loss on trade receivables —was only 69% of its full-year forecast and 64% of consensus estimates.

Amid MISC’s earnings miss, Kenanga Research reduced its earnings forecast and target price (TP) for MISC by 4%, cautioning that MISC’s gas and asset solutions division faces a challenging earnings outlook in the near to medium term amid continued pressures in the LNG market. “We cut our FY2023-2024 earnings forecasts by 4% each, reduce our TP by 4% to RM7.78 (from RM8.11) but maintain our ‘market perform’ call”.

Hong Leong Investment Bank likewise revised its earnings forecasts for MISC downward by 10%, 5.6%, and 5.4% for FY2024, FY2025, and FY2026, respectively, after factoring in a lower construction margin for the offshore segment and a reduced charter rate assumption for the petroleum division.

“Post-adjustments, we maintain a ‘hold’ call on MISC with lower sum-of-parts-derived TP of RM7.99 as we view that its risk to reward profile is balanced at this juncture. With expected yield of over 4% for FY24f-26f, we reckon the stock may not be an attractive divvy name for the time being,” it added.

MISC’s net profit for the third quarter ended Sept 30, 2024, dropped 21% to RM338.9 million from RM430.4 million in 3QFY2023, as revenue fell 12% to RM2.96 billion from RM3.37 billion.

Its 9MFY2024 net profit rose 9.6% to RM1.64 billion from RM1.49 billion in 9MFY2023, although revenue dipped slightly to RM9.93 billion from RM9.99 billion previously.

Overall, MISC has eight “buy” calls, seven “hold” calls, and no “sell” calls, with a 12-month target price of RM8.89, according to Bloomberg data.

https://www.klsescreener.com/v2/news/view/1425839

Armada needs need leadership at board level

Above or below analyst expectation?

High or low compared to current value?

Bumi Armada Berhad ("Bumi Armada") is pleased to announce that its wholly owned subsidiary, Armada TGT Ltd ("ATL"), has successfully secured a 2-year firm period extension for the TGT Project, via the execution of a BBC Amendment Addendum dated 13 November 2024 between ATL and HLJOC ("Extension").



The Extension commences on 15 November 2024 and will expire on 7 December 2026. The aggregate contract value is approximately US$74.4 million. Apart from the contract value, the Extension was finalised based on terms consistent with the terms of the BBC.

Since commencing operations at the TGT Project, the Armada TGT1 FPSO has delivered excellent operating performance with zero lost time incidents and an average oil & gas uptime in excess of 98%.



The announcement is dated 13 November 2024.

From navigator earnings briefing Q&A

Oeyvind Lindeman: With the Uniper MoU, they are currently now going and evaluating the current work that we’ve done with them. It is a pre-FEED study. And then their plan is to go into FEED study at some point during next year. In parallel, the U.K. government needs to put into regulation to support carbon capture shipping sequestration for the CO2. So it’s a process that takes time. All going well, maybe something next year, but it takes them 3, 4 years to actually construct all the infrastructure pieces that needs to go into it. So it’s towards the end of the decade, all going well where things can be ribbon cut and revenue generated. So stay tuned, but it’s a longer game.

My view is at least 80c

Thanks Nik and Robert

https://www.theborneopost.com/2024/10/31/up-to-rm200-bln-investments-projected-for-kuching-low-carbon-gas-hub-says-premier/

Oppoftunity?

Robert. Would you mind to explain the complexity bwteen CCS and FGRS

Bumi Armada Berhad ("Bumi Armada") wishes to announce that its wholly owned subsidiary Bumi Armada UK Limited (”BAUK”) entered into an Engineering, Procurement, Construction, Installation and Modification agreement with EnQuest Heather Limited (“EnQuest”) on 29 October 2024 for the provision of a Flare Gas Recovery System on the Magnus platform located in blocks 211/12a and 211/7a of the UK North Sea (“the Agreement”). The Agreement is expected to be carried out over approximately four (4) years with an estimated contract value of GBP50 million.



Implementing the Flare Gas Recovery System offers environmental benefit, as well as operational value. The capture and repurposing of flare gas will reduce Magnus platform greenhouse gas emissions, specifically CO2 and Methane, which are major contributors to climate change. This aligns with global environmental standards and regulations, helping EnQuest to meet its internal and externally committed emissions reduction targets.

Nik. Do you receive any news of BAB particioating in new project

https://www.upstreamonline.com/rigs-and-vessels/fpso-contenders-lining-up-for-tricky-replacement-job-in-malaysia/2-1-1722413

https://www.upstreamonline.com/rigs-and-vessels/fpso-contenders-lining-up-for-tricky-replacement-job-in-malaysia/2-1-1722413

How you guy look at this?

https://oilprice.com/Latest-Energy-News/World-News/UK-Unveils-Investment-Support-for-Renewable-Energy-Storage.html

https://cleantechnica.com/2024/10/08/uk-to-pour-28-billion-into-carbon-capture-storage-over-25-years/

https://www.upstreamonline.com/field-development/petronas-tempts-fpso-players-with-new-malaysia-offshore-opportunity/2-1-1714598

PTTEP has launched a tender for a replacement floating production storage and offloading (FPSO) vessel for the Kikeh oil and gas field offshore Malaysia, aiming for operations by 2028. The current FPSO, deployed in 2007, supports the Kikeh, Siakap North, and Petai fields, tied to a Spar dry tree unit in waters 1,320 meters deep. FPSO players, including MISC, Bumi Armada, and Shapoorji Pallonji Energy, and HBA have shown interest, with technical offers expected by November 2024. The new FPSO will have a production capacity of 40,000-46,000 barrels per day (bpd) of oil and 90 million cubic feet per day (MMcfd) of gas, smaller than the current unit's 120,000 bpd and 150 MMcfd capacity. However, the transition is challenging as the new FPSO must connect to the existing Spar platform, requiring complex integration. Market skepticism also persists due to PTTEP's push for cost-effectiveness, which may limit contractor enthusiasm. XX Despite plans for a new vessel, there's speculation about extending the existing FPSO's life. MISC, which will take full control of the current FPSO in 2025, performed recent maintenance that could extend its service life by 10-20 years. If PTTEP considers prolonging the current unit's lease, it could affect the bid process for the replacement.

Is this related misc fpso kikeh in sabah?

MISC willing to increase stake for FPSO
Which analyst of the view that MISC will not increase explosure in FPSO?
Good indication ahead

https://www.thestar.com.my/business/business-news/2024/09/06/misc-acquires-full-ownership-of-fpso-kikeh

Will be acquired then resuffle of the management team

Uob

Firm orderbook boosted from RM9.7b to RM12.1b qoq in 2Q24. Albeit delayed due to various commissioning issues involving both sides ie the contractors Sharporji Energy and BAB, and the client Oil & Natural Gas Corp (ONGC), BAB will recognise its 30% share of the full bareboat charter for the nine-year contract. We noted that BAB’s firm orderbook from the JV FPSOs increased qoq from RM1.6b to RM4.3b in 2Q24, which clearly assumed a quarterly burn rate of RM0.3b-0.4b and the US$2.1b ASV contract.  However, ASV has have a risk of claim adjustments. We understand that ASV will be recognised as an operating lease accounting. However, Upstream articles reported that payment dispute issues still lingered even in Jun 24. We understand from management that while the RM9m associate income was recognised based on entitled work done, it is still awaiting the outcome of a joint delay analysis, and any additional outstanding claims are still being negotiated. However, BAB was unable to guide when these processes are expected to be completed. Hence, despite having achieved final acceptance, we do not discount the risks of further volatility in ASV earnings until all the processes mentioned earlier reach a resolution.  FPSO Kraken may have another impairment by end-24, given that the extension contracts were exercised on a yearly basis. To recap, BAB incurred RM514m impairment on FPSO Kraken in 4Q23. This was not related to the downtime due to HSP transformers failures nor the costs of repair, as the FPSO production recovered a few months after the incident. It was due to changes in macro-assumptions like discount rate (8.5% was assumed) and inflation rate. At that time, management guided that the residual value assumed was already conservative at 2%.  However, BAB still used the straight-line depreciation method and this included the 17 years of optional periods. In contrast, Enquest (the client) employed the unit of production method depreciation on the FPSO. Now, we believe BAB is reassessing its method of depreciation, but there is no guidance until 4Q24. We also do not discount other reasons that necessitates another impairment review so soon after 4Q23. This is despite BAB’s guidance that it does not need to follow Enquest’ method of depreciation.  Upgrade 2024-26 earnings by 7%/5%/14% respectively, after upgrading associate income assumption given that there are no more delays in recognising the full charter rate of ASV5, although we are mindful that there are still earnings risk related to these projects. VALUATION/RECOMMENDATION Upgrade to HOLD with an SOTP-based target price of RM0.55 after rolling over to 2025 valuations (5x 2025F PE). As expected, the share price retraced after we called a SELL on the stock back in Jul 24, when the rumours of the MISC-BAB merger surfaced. Despite the good earnings performance, we remain concerned that the low gearing may not be reflected as a positive market factor. BAB may appear as a discount to Yinson’s 15x PE valuation, but both peers are valued within 5-7x EV/EBITDA. ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) UPDATES

1H24 core profit beat expectations, comprising 60%/58% of our/consensus estimates. Excluding a RM53m upward revision of the daily operating fee of FPSO Olombendo (this portion was recognised in 1Q24 and for the 2023 period), the positive deviation in 2Q24 provided a boost in associate income. Out of this, RM8.9m associate income is related to Bumi Armada’s (BAB) entitlement to works executed for the 30%owned associate FPSO Armada Sterling V (ASV), between the period of first oil in Jan 24 to the delayed final acceptance that was concluded only in July.  2Q24 EBITDA of RM360m in line with quarterly average (2Q23: RM183m; 1Q24: RM417m). Subsea vessels remain underutilised. Other than ASV5, there were no unusual trends in the FPSOs, which were expected to deliver higher earnings relative to 1H23. This was mainly due to: a) FPSO Kraken’s downtime in 1H23 for the failure of the hydraulic submersible pump (HSP) transformers, and b) FPSO Olombendo’s higher revenue base after the daily fee revision. As expected, FPSO Kraken’s first yearly extension option (out of 17) was exercised into firm contract for Apr 24 to Mar 25, at 70% lower charter rates.

UOB revised uoward tp to 55c

From cimb. TP revised upwards to 79c

Strong quarterly performance in 2Q24 2Q24 core net profit of RM265m was 11% higher qoq as the 30%-owned associate Armada Sterling 5 FPSO received cash payment from its client, ONGC, in relation to services performed since it achieved first oil on 7 Jan 2024. This enabled the FPSO to contribute RM8.9m in share of profits to BAB in 2Q24, against a RM25.1m loss in 1Q24. BAB also booked-in engineering consultancy revenues from its jointly-owned FPSO companies in 2Q24; these helped BAB deliver qoq core net profit growth despite 1Q24 being a high base, with the latter having enjoyed a lumpy RM60m O&M revenue uplift after BAB had successfully renegotiated O&M rates for the FPSO Olombendo to cover higher opex. Full earnings contribution from Sterling 5 from 1 Jul 2024 Reiterate Add, as we see a still-strong earnings outlook for 2H24F. As the Armada Sterling 5 FPSO received final acceptance on 1 Jul 2024, this will enable it to book its full bareboat charter daily revenues. As such, the contribution from the FPSO to BAB will increase qoq in 3Q24F, and we think the stronger earnings performance can be a potential share price catalyst. Another potential catalyst is a likely extension of the Armada TGT-1 FPSO charter, which is scheduled to end in Nov 2024F, with BAB currently negotiating to extend the charter to Nov 2026F, although we think the charter will likely continue into late-2031F; we have incorporated this into our SOP valuation and target price of 79 sen. Ignore the likely impairment for Kraken in 4Q24F Downside risks include a likely impairment of the FPSO Kraken in the 4Q24F results announcement during Feb 2025F, which BAB flagged at its analyst briefing this afternoon. BAB first impaired the FPSO Kraken by RM437m at its 4Q23 results which was announced at lunchtime on 28 Feb 2024; this caused its share price to fall 12% that day. That 4Q23 impairment was the difference between the carrying net book value (NBV) of the FPSO Kraken on its balance sheet, vs. the lower ‘Value in Use’ (VIU) which is calculated by reference to the discounted present value of the Kraken’s future cashflows. With the VIU likely to be below NBV again on 31 Dec 2024F (because the Kraken’s firm charter period ends on 31 Mar 2025F and the option period rates are a significant 70% lower), another impairment is likely although we think the size of the impairment should be lower than for 4Q23. We are not concerned about the impairment as the contracted cashflows for the FPSO Kraken remain unchanged and therefore, our DCF value of the FPSO Kraken charter contract is not affected by any accounting, non-cash impairment.

Bumi Armada Berhad ("BAB") refers to the unrated Sukuk Issuance programme established in 2014 by Bumi Armada Capital Malaysia Sdn Bhd ("BACM"), its wholly owned subsidiary, involving the issuance of RM1.5 billion nominal value Sukuk by BACM ("Sukuk"). The Sukuk has a final redemption date of 4 September 2024.



BAB wishes to announce that its wholly owned subsidiary, Bumi Armada Holdings Labuan Ltd ("BAHLL"), has secured syndicated facilities with 6-year tenor at an aggregate principal amount of up to USD400 million. These comprise a USD135 million conventional syndicated term loan and a USD265 million Islamic syndicated commodity Murabahah facility (collectively, "Facilities"), the proceeds of which are to be applied inter alia, towards the full redemption of the Sukuk and its related cross currency and interest rate hedge liabilities. The Facilities, which are guaranteed by BAB, were arranged by Maybank Investment Bank Berhad, RHB Bank (L) Ltd, AmInvestment Bank Berhad and Affin Islamic Bank Berhad as mandated lead arrangers ("Arrangers") and made available to BAHLL by 8 participating banks ("Financiers").



On 15 August 2024, BAHLL entered into the relevant Facilities documentation with, inter alia, the Arrangers and the Financiers. Utilisation of the Facilities, and the Sukuk redemption, are expected to occur immediately prior to 4 September 2024. BAB notes that the Facilities were oversubscribed.



The announcement is dated 16 August 2024.

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