RHB Report out: Maintain BUY, TP RM0.61

This court decision is unfavourable to Bumi Armada, as the company was seeking potential compensation of up to USD284m. Having said that, if it clears the outstanding amounts with Woodside, Bumi Armada could still see a net one-off cash inflow of MYR4.6m. The company is currently reviewing the judgment and considering possible grounds of appeal. Any appeal has to be lodged by 14 Feb.

FPSO Armada Claire is currently idle, and management is looking for redeployment opportunities amidst several enquiries. Recall that Bumi Armada impaired MYR570m on the vessel in 2Q16, and we do not expect any significant impairment/reversals subsequent to the court’s decision.

While keeping our earnings estimates – as the net cash inflow is rather insignificant – there is no change to our recommendation and SOP-derived TP. This was because as we have not factored any win from the litigation case.

Kenanga Report out: Upgrade Bumi Armada to BUY, TP RM0.53

The Supreme Court of Western Australia has ruled in favour
of Woodside, dismissing ARMADA’s claim for wrongful
contract termination. We are negative on the loss, given that
a favourable outcome was earlier seen as one of the more
hopeful avenues of raising cash to pare down its high
borrowings level. Nonetheless, we upgrade our call to
OUTPERFORM, with TP of RM0.53, as we feel the knee-jerk
sell-down coupled with weak market sentiment could
provide a trading opportunity.

Upgrade to OUTPERFORM (from MARKET PERFORM), with
TP of RM0.53 pegged to 10x PER on FY20E EPS.
While the high net-gearing still remains an underlying key
concern, we feel that the knee-jerk sell-off, coupled with weak
market sentiment, could be a trading opportunity.

DBS Report out: TP unchanged at RM0.75

Woodside Petroleum emerged the victor of the arbitration case between ABPL and WEJ.
BAB entitled to a net payment of about US$1.1m or RM4.7m.
BAB to appeal court’s decision.

This outcome is not expected to have a material impact on
BAB’s financials as we have not imputed the scenario of BAB
winning the arbitration case as it had been ongoing for
almost four years without any verdict. We believe that BAB
would have reasonable grounds to appeal against the
decision but we will continue to exclude the instance of BAB
coming out with any form or amount of compensation, to
be conservative.

JP Morgan's report out: TP unchanged at RM0.65

- BAB share price likely to open down 5-6% on decision; appeal likely, in our view: While we do expect near-term downside on BAB MK (5-6%) post this legal decision, we do believe: a) there will be an appeal by the company & b) there is limited downside risk to our PT as we had incorporated zero upside from this legal case.

IK - point taken.

There's some merits that EPF is gradually disposing to perhaps prepare for the upcoming dividend distribution. On this basis, the action is to sell all.

On a contrarian basis, I would personally continue to accumulate. EPF's entire shareholding is only around 5%. With an average daily trading volume of more than 50m, that could be cleared in 6 days. Once the EPF factor is gone, the uptrend will resume. I don't know when that will happen, but I have patience and time, and the ability to ride out this dip - all cash no margin. ;)

People are losing sight of the spectacular turnaround of BA over the past 3 quarters, and the reversion to being strongly profitable, which is sustainable for years to come as FPSO cashflows are stable and recurring.

Misleading headlines from the press doesn't help either - look at this headline by The Sun Daily:
"BA loses woodside dispute, required to pay AUD1.57m"

https://www.thesundaily.my/business/bumi-armada-loses-woodside-dispute-required-to-pay-au-157m-CL1940958

This is what I called misrepresentation. Where is the part in the headline that says Woodside also owes Armada money and on a net basis, Armada will get RM5m? But it's these kinda misleading headlines that generates irrational fear. The upside is the price is now at a severe discount due to weak sentiment.

And the strong operating cashflow will help BA deleverage overtime. In 3-4 years time, the debt level will halve from where it is today, and equity value substantially increased.

I reiterate, see the big picture, this is just the beginning of the turnaround story. With enough faith, patience and time, we'll get back to RM1.

See the big picture. This is a turnaround growth story.

1) When Claire's termination was announced in 2016, share price went down from RM1.00 to RM0.80. Then Claire was fully impaired - around RM600m impairment.

2) So far, BA's share price has dropped RM0.15 from RM0.55 to RM0.40 due a combination of profit taking, short selling, EPF selling and Claire's court case outcome. Despite a mild positive of RM5m.

The key difference is, 1) has a cashflow impact, and 2) doesn't.
The drop in 1) is justified, but 2) has no logic at all - just a perfect storm of negative sentiment.

I wouldn't suggest you to buy after 1), but I would strongly recommend to buy after 2).

Accumulate on dips.
The bottom is anyone's guess.
But it's evident that sentiment is prevailling over fundamentals and logic in these few days.
The outcome is a clear mild positive (RM5m) to Armada with no impact to fundamentals.
If EPF, short-sellers, panic retailers want to sell, so be it.
I'll continue to accumulate with every drop, and let's see where we are by end Feb when Q4 is due. ;)

Faith tested. Guts wrenched. Do you have what it takes to reap the full rebound? If not, please panic sell. ;)

Basically, exactly the same as what I said earlier.
No impact to Armada, mild net gain of AUD2m.

Kraken and OMS performance turnaround are the crucial ones.

First analyst report out by Jefferies.
No change to TP, maintain BUY call at 0.63.

The decision was unfavorable for Bumi Armada but it is SOP-valuation neutral, as we have not factored in any payout from the FPSO Claire lawsuit in our financial model.
- We do not discount the possibility of more actions to be taken by the group (i.e. further appeals and etc) but we maintain our view that no payouts are expected to be received with regards to the FPSO contract premature termination to be received in the near term.
- On the flipside, we reiterate our positive view on the stock on the back of:
(i) better cash flow expected from OSV business pegged to our positive
expectation for the industry in 2020.
(ii) Stabilization of Kraken field production, thereby leading to more consistent cash flows to be received from FPSO Kraken.

https://www.oedigital.com/amp/news/475045-bumi-armada-might-appeal-woodside-fpso-case-ruling

0.415 appears to be the floor with extremely strong support.

Rebound is coming.

More important, Kraken’s efficiency has been >90% now. This is a major operating FPSO that deserve the most attention. Take advantage to buy on this temporal dip while fundamentals and cash flow continue to strengthen. The profit potential now is getting huge.

******

EnQuest Plc (LON:ENQ) highlighted a strong performance at the Kraken oil field as it boasted 26% growth in group production for the ten months to the end of October.

Kraken has averaged gross production of 34,286 barrels of oil per day in that period, and, has achieved improved efficiency, EnQuest noted.

Group production was marked at 68,501 for the ten months with Kraken contributing 24,172 boepd net, 29,041 boepd coming from Northern North Sea assets and 6,898 boepd added from the Central North Sea.

EnQuest maintains its full year guidance for between 63,000 and 70,000 boepd.

"The group has continued to deliver on its targets for the year against its strategic priorities of deliver, de-lever and grow,” said chief executive Amjad Bseisu.

“Production at the end of October was 68,501 Boepd, with Kraken in particular performing strongly. Production efficiency at Kraken has been over 90% in the last few months.”

Anyway, any appeal is just going to be a bonus if awarded. Can assume 0 unless proven otherwise.

Buy Armada based on the turnaround big picture and improving fundamentals, not lottery bet on Claire appeal.

Hope this provides some strategic clarity,

Most likely will appeal by 14 Feb.
No harm trying, all the work has been done.
Then we’ll have final judgement by mid 2020.

Judgment was delivered by the Supreme Court on 24 January 2020 as summarised as below:

The Supreme Court ruled in favour of WEJ on ABPL’s main claim of repudiation of the Contract.
ABPL was found to be entitled to a payment of USD 2,000,050 for unpaid milestone claims and AUD341,165.29 for unpaid invoices. ABPL was found to be required to pay WEJ AUD1,567,302.20 for reimbursement of miscellaneous charges.
Bumi Armada is currently reviewing the judgment and considering possible grounds of appeal. Any appeal is to be lodged by 14 February 2020.

Bumi Armada will provide updates from time to time on any further material developments on this matter.



This announcement is dated 28 January 2020.

Perfect storms like these highlight BA’s weakness in communications.

Coronavirus + Oil Price dip + Claire’s case dismissal = sentiment perfect storm.

Although if you look at all the above factors, none of them have any impact on BA’s operations. If any, it’s a mild positive RM5.5m gain from Claire sundry claims.

And yet the price tanked 10%.

This may sound like a broken record, but it’s probably going to be sound advice a few months down the road when all these one-off factors blow over:

Relax, keep calm, and continue buying on temporal dips

Q4 and full year 2019 results probably will be released 28 Feb 2020, similar to last year.

Look out for

1) Further Kraken improvements
2) Higher OMS utilization
3) Disposal of idle OMS for cash to reduce debt
4) Updates on Claire's next move - appeal on 165.5m or not. What to do with Claire vessel.
5) Restructuring of last remaining Kraken ST debt to LT
6) Perdana cost savings - RM18m/quarter
7) Amount of cash generated and debt reduced
8) Plans for 2020 going ahead - like to continue focusing on optimizing ops and lower cost

Bumi Armada didn't even bother to announce Claire news because of RM5.5m gain is immaterial.

There is no impact to operations at all, cashflow generation from Kraken's improvement and OMS higher utilization remains strong, and this will pare down the restructured debt over time.

As long as oil price doesn't crash to a low level like $30, Armada's fixed charter rate and revenue generation ability has little to do with oil price. It is more linked to counterparty credit default risk. But even if a counterparty like Enquest goes bankrupt, the liquidation administrator will continue pumping oil and pay Armada.

All-in-all, my personal conclusion is that this knee-jerk dip is hugely sentiment based which overpowered fundamentals.

However, given time, fundamentals always prevail.

Take advantage of this dip and buy in now. When fundamentals prevail, that's when you will reap the big profits.

Buy on knee jerk irrational panic sell!
Yum

AUD2m/MYR5.5m one off gain from Claire.

At least something or too little?

Expected or disappointed?

We’ll know tomorrow.

Logic dictates that there’s no change to operations and cashflows.

Sentiment wise to be revealed tomorrow ;)

Probably a muted response on Tuesday, as investors digest and assimilate the news.

The net impact is a mild confirmed gain of RM5.5m, not material.

I expect price to trade range bound.

Sorry, superstition like “rat year” = 2008 global financial crisis going to happen again sounds like a logical fallacy.

In that case I’d suggest you to consult a fengshui master and learn the alignment of the stars to decide the TP of Armada, instead of looking at financial statements, news flow, and latest developments.

There are 2 components:

1) 275.8m - court dismissed this, but states that 165.5m has some merits on “secondary issues”. So this will most likely be in the appeal of BA - 165.5m. Takes another 6 months or so, then we’ll know whether BA can get anything or not.

2) 7.7m - other sundries. On a net basis, BA is awarded around AUD2m or RM5.5m

Woodside’s announcement is based on 1), without considering the 165.5m potential appeal by BA which the Supreme Court judge acknowledged may have some merits in the event that his decision gets overturned by court of appeal.

So I think BA’s announcement is going to be like, we’re awarded about AUD2m, and we’re going to appeal 165.5m because we believe we have grounds to win the appeal, which the Supreme Court has acknowledged there are merits to it.

So based on this, make your call.

Actually, just assume 0 Claire award for 1), and AUD2m for 2), so basically is a small gain because Claire has been written down in 2016. The company had a lottery ticket that won a small prize, that’s it. It’s still consolation peanut ibox prize.

This judgment has no material impact on BA’s operations or financial results (small gain only), and Q4 results are way more important, esp Kraken and OMS performance.

I look forward to a dip next Tuesday (hopefully). The bigger the better for collection before a rebound in Q4 before market comes to its senses and see the turnaround big picture. The market always does this, so it’s an opportunity to take great advantage.

Get ready your bullets!!

Maybe appeal can win US$165.5m as determined by the current judge. My read is that he’s saying there’s some merits to US$165.5m although he dismissed US$283.5m.

Oh well, still an ongoing case. I’m sure BA will appeal, then maybe final order is some middle ground.

But since many people don’t bother to read in depth, they only read headlines (which sounds negative though in truth it’s not) and may sell on weak sentiment. That’s how our market works. Perception > reality.

Relax, enjoy the holidays, and see you after Q4 results.

All the best.

Anyway, Happy Chinese New Year to everyone.
Wishing everyone (and BA) a very prosperous new year ahead!
Enjoy the holidays, relax, and look forward to Q4 (end Feb).
Cheers.

Need someone with legal background here to read through the court document in detail, and please let us know whether the "secondary issue" claim US$165.5m - what does this really mean?

Thanks.

To be clear - Armada did not "lose" US$283.5m.
Any award - even a small RM5.5m, is a gain.
Woodside's share price has almost no impact either - +0.4% gain.

If you look at the discounted cashflow projections of all equity research analysts - all the projections do not include Claire's bonus award into their calculations, when they discount the cashflow back to present value to derive their TP. This is what it means by the market is "not pricing in any potential award by Claire".

That's just the sundry issues that have been sorted for the RM5.5m.

In fact, the judgment is not very clear. I think on a high level basis, the court said no to Armada's US$283.5m claims for breach of damages against Woodside.

However, from Para 764 - 771: there are "secondary claims" to be determined, and this amounts up to US$165.5m damages to Armada.

Then only final order can be made.


----EXTRACT---

764 AB's objection must be upheld. As a matter of fairness, I am not
prepared to allow WEJ to proceed in a fashion that I accept would be
unavoidably prejudicial to AB, by denying it a fair opportunity to
earlier engage as against these very late, as revised MPPT calculations.
As a result, in the end, I must accept Mr Ashby's MPPT calculations for
AB as the more reliable calculation outcome, grounded as they are
upon an admissible base of trial evidence, unlike for WEJ.
765 As I have indicated, both forensic accountants produced
impressively assembled and reasoned reports. Their trial evidence
under their respective brief cross-examinations at trial, was in each case
plausible, coherent and, in the end, largely unshaken.
766 However, at the end, I am left the more persuaded, as I venture
down this hypothetical lost income opportunity damages path, by the
logic of the conclusions as reached for AB by Mr Ashby, as seen
reflected under the Ashby Bar Graph - subject to one qualification.
767 In particular, I prefer and accept as the more persuasive,
Mr Ashby's methodological approach as concerning disputes over the
following items as between the two accountants:
(a) MPPT of $US33.3 million (which, as I indicated, is largely due
to its secure trial evidentiary foundations);
(b) accelerated costs of $US3.4 million;
(c) interest of $US7.6 million;
[2020] WASC 14
KENNETH MARTIN J
Page 231
(d) the milestone B12 $US2 million payment (a necessary
consequence of this wholly hypothetical alternate analysis -
which necessarily proceeds in this hypothetical environment on
the basis that practical completion would have been achieved by
AB for its FPSO Facility);
(e) tax of $US0.1 million;
(f) other cash flows of $US6.2 million;
(g) inflation of $US0.4 million;
(h) working capital of $US0.5 million;
(i) start date amount of $US2.7 million; and
(j) discounting of $US0.3 million.
768 The only calculation by Mr Ashby upon the disputed items that I
do not accept is his capital expenditure allowance of $US6.8 million.
769 Towards that item, I prefer as the more logical, the rival approach
of Mr Jaski for WEJ as to a likely future incurring of potential future
expenditure under circumstances, where there was no 'back-to-back'
reimbursement applicable for it. By contrast, Mr Ashby's instructions
had been to the effect it should be assumed by him no further capital
expenditure would have been incurred by AB from April 2016 to
August 2018. Mr Jaski was not in this realm conceptually fettered by
such an instruction and so, I prefer his overall approach to this issue.
770 In end consequence then, I would, if necessary, under AB's less
preferred damages scenario, assess AB's loss of profits in US dollars by
reference to the Ashby Bar Graph - but with an excision of his capital
expenditure figure. Hence, the end calculation is $US172.3 million,
minus $US6.8 million, culminating in a net loss position for AB of
$US165.5 million.
771 That completes all my findings and conclusions on the trial's
secondary issues, should they be required.

small award.
probably flat.
Q4 more important.

so, in conclusion, Woodside owes Armada around AUD3.5m
Armada owes Woodside around AUD1.5m

In total, Woodside has to pay Armada AUD2m, around RM5.5m.

In the end, with issues of interest set aside, to be resolved later if
necessary after the publication of these reasons, I assess as regards
these various amounts as claimed, set off or cross claimed, that:

(a) for the Milestone Claims, WEJ owes AB $US2,000,050.00;

(b) for the further mutual claims determined under Part V:
(i) WEJ owes AB $AUD341,165.29 (for unpaid invoices
see par 54E of the 4FASOC which was not disputed);
[2020] WASC 14
KENNETH MARTIN J
Page 249
(ii) AB owes WEJ $AUD207,399.08 (for reimbursement of
crew insurance policy renewals);
(iii) AB owes WEJ $AUD1,348,384.00 (for incorrectly paid
redundancy costs) and;
(iv) AB owes WEJ $AUD11,519.12 (for essentially admitted
logistics backcharges and MDO fuel adjustment
amounts).

Extremely safe position to be in.

Current at 20% discount compared to 2 weeks ago.

Claire potential award to be announced in a few hours. Any award is going to gap up. No award no impact to operations.

On a risk adjusted basis, it’s extremely favorably to buy in now.

But of course, your money, your call.

FATA86, good point.

Claire = nothing to lose, only to stand to gain.

rights issue is not needed at all even if award = 0.
Armada's operating cashflow is more than sufficient to handle the debt repayment profile.
The fundamentals have turned around and the contributions from the 4 major FPSOs are extremely strong.
In 3-4 years time, at the current cashflow generation rate, debt will be halved.

Up to US$283.5m, or RM1.1bn.
This will double Armada's cash balance, creating an extremely strong buffer for its balance sheet.
Any debt murmuring by naysayers would be completely quashed.
Be ready for a rocket launch.

No award = no impact to operations = turnaround fundamentals intact.

Assuming no award, I would still buy. Armada’s P/B assuming Kraken write back is still 0.5x compared to Yinson’s >2x. Extremely cheap.

Any award is just bonus upside. So nothing to lose, stand to gain. BUY!

I'm assuming Claire award = 0, and I'm still buying.

Q4 core net profit likely to be >RM90m.

Kraken at >80% efficiency.

Further disposal of idle OSVs to reduce debt, and redeploying the rest to boost utilization and cash flow.

Constructor and installer award possible in 2020.

The current discount is not going to last long - great opportunity to top up. Time and patience = great profit. I'm not quite interested in only 20% from current price, I'm more interested in 2x.

Fingers crossed and good luck to everyone :)
When in doubt, trust your guts!

IK - I'm buying.

When everyone smells hopelessness, I smell money.
;)

A fast and furious rebound is coming.

Large institutional funds are patiently waiting for the price to wither enough, waiting to strike. Once the first big move is made, the upwave is likely to be extremely strong similar to end Dec.

See the big picture, this is a turnaround story with significantly improved fundamentals.
The current price is still at a huge discount to its full potential.
Relax, keep calm, and continue buying on dips.
Hold for a few months and enjoy the ride.

Extremely undervalued at this price.

Profit taking has slowed down and share price is consolidating.

Relax, keep calm and continue buying on temporal dips.

Rebound is imminent and hopefully 0.55 barrier will be broken when Q4 results are out.

Those without patience or panicky, sell now.

Don’t need to worry about EPF so much at all. Bunch of idiots there - I know many of the people there, not impressive at all.

EPF’s selling well absorbed by market, price consolidating for a rebound.

Interesting. You’ve got a point.
EPF flipflopped as substantial shareholder in 2017

EPF ceased to be substantial shareholder on 20 Feb 2017 - https://disclosure.bursamalaysia.com/FileAccess/viewHtml?e=2737462

EPF became a substantial shareholder again 2 days later on 22 Feb 2017 -
https://disclosure.bursamalaysia.com/FileAccess/viewHtml?e=2739265

Or they may announce that they are a substantial shareholder again in a few days.

Anything is possible now.

Make your own call ;)

EPF announced ceasing to be substantial shareholder.

So the 5% floor doesn’t apply anymore.

EPF may continue selling and doesn’t need to announce anymore.