Which investment bank is this from?

By the way, the Nigerian market is heating up once again. For many years there was a pause due to policy uncertainty. Way back in 2017-2018 era, Bumi Armada was the frontrunner for the Eni ZabaZaba FPSO. However the project was never sanctioned. If revisited, Bumi Armada might be interested. As they would in other Nigerian FPSO opportunities.

@Sovereign, there is definitely some question marks on competency. They have stemmed the bleeding, mainly by selling off the OSVs and stabilising the operations at Kraken (which nevertheless still resulted in the blown transformers last year). There is no magic wand being waved beyond that.

Since 2015, the only notable contract win is the Armada Sterling V.

They have spent hundreds of million MYR on conducting all kinds of studies relating to "green" technology since 2020, with nothing to show for it yet.

They have 2 expensive vessels laying idle for over 5 years in the Caspian Sea, with a short campaign for hire in 2022.

The FPSO market has been red hot for the past 3 years, where has Bumi Armada been? One after another, they lost on promising prospects - chief of which was Agogo and Cameia in Angola. They were very certain to land either one, eventually they got nothing.

The debt situation was brought down to acceptable levels by mid to end 2022, so that's not the excuse for missing out on these projects.

To make matters worse, the Bumi Armada management lacks transparency as I have shown in the past, where material information is withheld from the public.

So yes, I would assume there is a good reason to conserve and grow the cash pile. But I am not certain they know what they're going to use it for.

Sometimes, I feel like Bumi Armada should close down its corporate and sales offices, and just focus on operating their existing assets and maximising shareholder returns. The terminal value after factoring in all the cost savings would be around RM0.90 to RM1.00 per share.

In the AGM back in May 2024, the CFO alluded to the fact that cash was consciously being conserved to undertake an upcoming project. In Sep 2024, they fully repaid the RM1.5bil sukuk by taking out another matching loan, instead of utilizing some of the cash pile to reduce the refinanced loan.

It is either:
1. They really don't know what they're doing and have missed an opportunity to use the cash to reduce the interest expense. As it is, the new loan carries an interest rate of around 9.0%, compared to 6.35% for the previous Sukuk.

2. There is a project around the corner requiring significant outlay. It can't be the Bluestreak FCSIU, as the FID will only happen in the 2026-2027 period at the very earliest. It also can't be the Akia PSC exploration, as that too will only happen in the 2026-2027 period at the very earliest. So that leaves us with some possibilities on an imminent contract win:

a. Sarawak Shell FCSIU
b. Enquest Sullum Voe Terminal FSU/FSRU
c. Madura FLNG
d. Unknown FPSO project (least likely possibility as there are no known prospects at the moment)

3. There was something on the cards at the time of the AGM, but it's since been deferred or scrapped or awarded to another company.

Wait for me for what? The highest I averaged up at was RM0.47 a few months ago. I'm not likely to add to my holdings anytime soon. I'm just waiting on the sidelines to see how things pan out.

Ping pong, you know squat about anything.

It's a fairly decent contract award - around USD35mil/year during the 10-year firm period.

Gut punch: https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3505462

This was a project that Bumi Armada had tendered for.

Rest in peace, good sir!

Excerpt from the latest CGS report:

Downside risks include a potential negative market reaction to an impairment of the FPSO Kraken in the 4Q24F results announcement during Feb 2025F, which BAB had already twice flagged at its analyst briefings (this afternoon’s briefing and the briefing three months ago). In 4Q23, BAB made a RM437m impairment against the carrying value of the FPSO Kraken, as the present value of its future cashflows at that time fell below the book carrying value of the asset. This was because the depreciation rate was not sufficiently conservative as it was
calculated on a straight line basis over the 25 year charter period (8-year firm period and 17-year option period), whereas the cashflows of the asset are concentrated in the 8-year firm period with the daily charter rate of the asset to decline 70% in the 17-year option period. As the FPSO Kraken’s charter contract approaches the end of its firm period on 31 Mar 2025F, the present value of the remaining cashflows had fallen below the net book value as at 31 Dec 2023, and will again fall below the net book value as at 31 Dec 2024F, according to BAB.

--------------------

How is this not downright fraudulent? Bumi Armada's management and accountants well knew from the day the contract was awarded that the lease rates drop 70% in the option period. Shouldn't the depreciation have been done in a manner that takes this into account? E.g. weight the depreciation by the projected revenue - resulting in higher depreciation during the firm period and lower depreciation charges in the optional extension period.

To me that's just common sense. Now management claims the net book value of the vessel is lower than the NPV of the remaining cashflows - again, this is something that should've been evident from the get go.

Did management intend to artifically inflate profits due to various Kraken startup issues in the initial couple of years?

How come other FPSOs e.g. Armada Olombendo and Armada TGT do not have these issues?

Near term catalyst:

1. Armada Sterling II contract extension. The original nine-year firm time-charter expired on 7 March 2024. A 1-year extension has been agreed to 7 March 2025. Discussions are ongoing to extend the contract further.

Timeline: ~3 months
Impact: Minimal as Armada Sterling II is the smallest FPSO and the lowest original contract value. Nonetheless, each extension year should be worth around 0.75 sen net per share to Bumi Armada.

2. Armada Installer and Armada Constructor contract wins. They are actively bidding for contracts in the Kazakhstan sector of the Caspian sea.

Timeline: ~3 to 12 months
Impact: Moderate as the vessels are idle and incurring depreciation and lay-up expenses every day. With a contract win, the net impact per share to Bumi Armada per year of service can be significant. Estimated at around 2.0 sen net per year of contract award.

3. Madura FLNG contract award.

Timeline: ~6 to 12 months
Impact: Significant as it will be a multibillion USD development with a lengthy (8+ years) charter period.

Other projects are less clear and are more longer-term in nature.

1. Sullom Voe FSU or FSRU
2. Shell Sarawak FCSIU
3. Bluestreak FCSIU
4. Akia field development
5. Akia FPSO and/or FLNG
6. Unknown Indonesia gas project (offshore)
7. Budi has project in Indonesia (onshore)
8. Kraken long-term lease extension - currently it is on 17 annual automatic one-year firm renewal 12 months before expiry
9. Kraken tieback to Bressey gas field
10. Potential FPSO win in South East Asia. Prospective candidates include Nam Du-U Minh in Vietnam, Salam-Patawali in Malaysia, Sepat in Malaysia, Kikeh in Malaysia, Tuna in Indonesia and Kelidang in Brunei
11. Unannounced floating power barge venture
12. Unannounced floating data center venture

FPSO giant in the making?
Currently, Bumi Armada and MISC have eight and 10 operational FPSOS, respectively.
One development is MISC’S Mero-3 project delivering first oil on Oct 30 after some delay.
The group was contracted by Brazil’s state-owned Petróleo Brasileiro SA (Petrobras) to supply the very large vessel for a significant deep-water project in the Santos Basin in Brazil. It received the final acceptance from Petrobras on Nov 2, legally allowing the 22.5-year charter period to commence.
The Mero 3 project was announced in August 2020 and MISC had spent a substantial sum to build it through internally-generated funds.
One broking firm estimates that the vessel could garner a daily charter rate of US$800,000 a day, which is equivalent to the income of 12 LNG carriers or 20 petroleum tankers. If the merger materialises, Bumi Armada shareholders can enjoy its incoming earnings and cashflows.
CGSI in a Nov 15 report notes that MISC intends to monetise the Mero-3 asset since its efforts to find trade buyers have so far not been successful.
This will free up cash flow for future investments.
And with the capital-intensive FPSO industry getting more complex, there are merits to pooling capabilities.
“The business rewards are high but they come with huge capital commitment and risk. So execution is a critical factor in the FPSO business,” says one industry player.
A combined entity will almost equal the fleet size of Japan’s Modec Inc – one of the world’s biggest FPSO players – which recently opened an office in Kuala Lumpur.
The merger is a re-rating catalyst for Bumi Armada whose share price has been in the doldrums.
Yoong notes that a decade ago, Bumi Armada’s market cap stood at Rm14.6bil, while Yinson Holdings Bhd’s was Rm2.2bil. Today, Yinson’s market cap has grown to Rm8.3bil versus the former’s Rm3.2bil.
That said, Bumi Armada’s balance sheet is stronger today, having cleared some debts, divested all of its offshore support vessels and unprofitable businesses wound down.
Its 3Q24 net profit rose 19% to Rm211.3mil. Cash balance stood at Rm1.1bil.
EGMS will need to be convened at both companies, giving minority shareholders a chance to analyse and vote accordingly.
But one thing this development confirms is that Bumi Armada is a merger and acquisition target.
The merger, if it happens, could confirm speculation that the reclusive Ananda is looking to pare down his stake or exit as the 86-year tycoon has no clear successor.

SHARES of MISC Bhd have trended down, while those of Bumi Armada Bhd have risen following last week’s confirmation that the two parties have started merger talks on the former’s floating production, storage and offloading (FPSO) assets.
The market, thus, indicates that the deal could be more advantageous to Ananda Krishnan-owned Bumi Armada and less so for the national shipping giant, MISC.
One obvious aspect of the proposed merger is their difference in size – MISC is 10 times bigger than Bumi Armada in terms of market value. Thus, the positive for the latter is that the deal should enable it to leverage on MISC’S stronger balance sheet to pursue FPSO projects.
How does the deal fare for MISC, which is 51%-owned by Petroliam Nasional Bhd (PETRONAS) and counts the Employees Provident Fund and Permodalan Nasional Bhd as major shareholders?
According to the Nov 14 announcement, MISC intends to inject its offshore assets into Bumi Armada aimed at establishing a regional pure-play FPSO player.
MISC’S offshore business owns, leases, operates and maintains offshore FPSO terminals.
While the exact stake MISC will hold in Bumi Armada remains unknown, the prospective merger may involve an all-share transaction. The parties intend to maintain the listing status of the merged entity and they have nine months to conduct due diligence and sign a definitive agreement.
Apart from offshore, MISC operates three other segments – petroleum, liquefied natural gas (LNG) and heavy engineering.
Petroleum contributes the most revenue, followed by LNG, where it is one of the world’s largest owner-operators of LNG carriers.
Within its petroleum fleet, it operates very large crude carriers (VLCC), and mid-sized tankers like Suezmaxes and Aframaxes.
With decent dividend yields, and the backing of PETRONAS, the stock is a blue-chip name.
However, the exceptionally low spot rate environment for LNG carriers has been a drag on earnings.
Spot rates for LNG are expected to remain largely subdued due to low demand for Asia and the high LNG vessel supply in Europe, Kenanga Research says in a note to clients.
The brokerage, for one, thinks that at this stage the potential merger is largely neutral for MISC.
“However, the merger could be more advantageous for Bumi Armada as it would enable the company to leverage MISC’S stronger balance sheet to pursue larger FPSO projects.”
Research firm CGS International (CGSI) says it is in principle positive on the deal.
One concern is the implications of MISC possibly having to expend a lot of its cash on a mandatory general offer (MGO).
It says this may unlikely happen. Additionally, an all-share transaction will help preserve MISC’S cash balance. However, CGSI contends that the potential merger will unlock Bumi Armada’s persistent undervaluation.
“Our 79-sen target price for Bumi Armada implies a Rm4.7bil valuation (in contrast to its market cap of Rm3.2bil), while we value MISC’S offshore business at Rm15bil.”
At the time of writing, MISC’S market cap stood at Rm33.9bil.
Combining the two entities at these valuations, CGSI says MISC could end up with a 76% stake in
The prospective merger may involve an all-share transaction
A combined (FPSO) entity will almost equal the fleet size of Japan’s Modec Inc.
the merged entity, while Ananda’s stake may be diluted to 8.3% from 34.8%.
It says if the tycoon, via his private vehicle Objektif Bersatu Sdn Bhd, could publicly announce that it does not intend to accept the MGO, there is a chance that MISC may not cross the compulsory acquisition threshold of 90%.
Alternatively, it could apply for a waiver from the regulator.
Private investor Ian Yoong says MISC could undertake a dividend or distribution-in-specie of Bumi Armada’s ordinary shares to its shareholders.
This will ensure that it meets the minimum public shareholder spread of 25%. As for Bumi Armada, it could apply for a moratorium to meet the minimum public shareholder spread.

Maybank updated report: www.mkefactsettd.maybank-ke.com/PDFS/421214. pdf

Maintain BUY with a higher TP of MYR0.71

Appreciate if others can share reports from other IBs e.g. CGS, CIMB, RHB, UOB, HLB etc.

Gabriel, which bank is this? What's their TP?

I've gone through the report. Nothing exceptional or extraordinary to highlight. But there are some interesting tidbits:

1. Despite earning full charter revenue for Armada Sterling V in Q3 2024, share of results of JV and Associates have reduced from RM32mil to RM15mil. I suspect this would be also due to the sharp weakening of USD during the quarter resulting in unrealized FX losses at the JV and associates level.

2. Armada Sterling V FPSO has completed the necessary tests and successfully achieved final acceptance on 1 July 2024. The Group holds a 30% interest in associates involved in the 98/2 Project. The associates are in discussions with the charterer on outstanding claims.

Some thing to note:

USDMYR rates used to report the balance sheet items and unrealized FX losses:

30 June 2024 = RM4.7195/USD
30 Sep 2024 = RM4.1075/USD
22 Nov 2024 = RM4.4675/USD

There is a 13% depreciation just between 30 June and 30 Sep 2024. This can be seen in the lower NTA of RM0.95 (Q3 2024) vs RM1.05 (Q2 2024) as Bumi Armada's assets and liabilities are mainly denominated in USD.

This has also resulted in unrealised FX losses of RM44mil in Q3 2024. This would have also resulted in lower revenues by around 5-10% in the quarter compared to the preceding quarter, which would have directly adversely impacted the bottomline by around RM20-30mil.

Reported net profit = RM211.3mil

Adjustment:
Unrealised FX losses = RM44.0mil

Core net profit = RM211.3mil + RM44.0mil = RM255.3mil

Now if you add another RM20mil to that, you get RM275mil. This would've been Bumi Armada's best quarter on record were it not for the Ringgit blitzing against the Dollar in August and September 2024. Funnily enough, it has given up more than half of the gains since, so this will end up inflating Bumi Armada's profit in Q4 2024.

Note: I believe the unrealized FX losses are part of the "Administrative Expenses" reported on the P&L, which has increased by around RM42mil over the previous quarter.

I won't be surprised if the delay in drilling contributes to a further impairment in Q1 2025. I believe the Kraken FPSO was due for impairment again anyway, this might just make it worse.

Not looking good at Kraken. With the drilling cancelled, there is nothing to support the production plateau and the long term viability of the field may be called into question.

https://www.upstreamonline.com/rigs-and-vessels/partner-dispute-leads-to-costly-rig-cancellation/2-1-1741948

Yes there is a chance, albeit a miniscule one, that a dividend may be declared.

@Sovereign I believe the valuation basis is same. SOP valuation is derived from the DCF of each asset.

Bumi Armada is currently working on the following potential projects:

1. FSU/FSRU for SVT with Enquest
2. FCSIU for CSS Hub with Sarawak Shell
3. FLNG for Madura with Pertamina
4. Undisclosed offshore gas project in Indonesia
5. Budi Onshore gas project in Indonesia

So far no positive developments for any of these.

Heads up, Q3 results come out on Friday noon

For the moment all analysts are pencilling zero valuation for Akia stake as Bumi Armada gas yet to share any formal appraisal or the discovery. I believe they've undertaken seismic studies a couple months ago and may know more in the coming months. Obviously if there is value here, then it is management's duty to ensure it gets added to the EV and the share swap deal reflects that accordingly.

Robert if the share swap is conducted on an Enterprise Value basis, then the Market Value will not be an issue. The market value will slowly catch up to the Enterprise Value prior to the share swap.

Bumi Armada's FPSOs are also mostly at the tail end of their tenures. Meanwhile, MISC has 2 gigantic floating vessels, one of which is Mero 3 which just begun the multi-decade charter recently.

If we take EV of RM4.7bil for Bumi Armada and RM10.0bil for MISC, then Bumi Armada's shareholders' stake in the merged entity will be at 32% vs 68% for MISC. In this calculation, the market value DOES NOT matter. Logically though, the closer we get to a deal, the narrower the EV and MV will be as speculators take advantage of the arbitrage opportunity. There will however always remain a gap between the EV and MV because of the risk of a deal falling through.

Also, the EV can always be revised with new developments, e.g. if Bumi Armada gets any new contracts in the next 6 - 9 months.

Damn RM4.7bil (Armada) vs RM15bil (MISC). But like Raymond says, the best thing is the Bumi Armada market valuation might catch up to its RM4.7bil fair value. Still 50% to go, assuming nothing else changes.

I also don't understand why they keep saying that Bumi Armada doesn't have the balance sheet to fund the Bluestreak or Madura FLNG projects. There is RM1bil cash sitting there, plus there is room to take on significant funding given the lower gearing levels.

Bumi Armada might also focus on disposing the two SC vessels in the Caspian Sea. They are no longer a core asset.

Bumi Armada being valued at RM4.6bil seems fair, as things stand.

However, I don't know enough about MISC's offshore business to tell whether RM10.0bil is a fair valuation.

Don't discount the possibility of a dividend declaration in the Q3 2024 results. Might be a way to extract out the excess cash, and also might be a final hurrah for Ananda Krishnan before the 2% dividend tax kicks in next year.

Regardless, this shows that Bumi Armada is back on firm financial footing. Eventually being part of the Petronas group and having Mero 3 in its lineup will enhance the company's image even further.

There is also a separate matter of MISC buying Ananda's stake in Bumi Armada. I believe it should be part of the MOU.

So MISC will gain controlling stake eventually by taking over Ananda's shares and getting shares in return for injecting their offshore business into Bumi Armada

Anyone have any new research reports, please share. CIMB, RHB, HLB, Citibank, Philips Capital etc. I checked Maybank, they don't have any update.

Anyone have updated research report from CIMB?

@Gabriel I don't know about analyst expectation but it is slightly lower than mine. I had it pegged at around 2 sen per share per year, but this looks more like 1.5 sen per share per year. The extension should be worth around 3 sen per share in totality.

The extension was only until 2026, which is reflective of the fact that the license extension for the TGT field to 2031 has yet to be approved by the Vietnamese authorities.

Essentially, there is another potential 5 year upside to the extension beyond 2026.

The idea of absorbing the FPSO business of MISC into Bumi Armada sounds more sensible than MISC outright buying the entirety of Bumi Armada.

Lets see how this plays out.

The initial 6 year extension from 2018 to 2024 (6 years) was for USD285mil.

This additional 2 year extension from 2024 to 2026 (2 years) is for USD74.4mil. It seems a bit lower than the previous extension, which was worth around USD95mil for 2 years.

ocbc the cash generation will slow down next year April onwards as Kraken FPSO enters the optional charter period with 70% lower revenues.

In any case, the TGT FPSO charter expires on 14th Nov 2024. The announcement is coming, hang in there boys.

It's really a wonder how you can get more information from following their partners (Enquest, Pharos Energy, Navigator Gas, even ONGC) than you can get from Bumi Armada directly.

ocbc the FPSOs are all under RM1bil except Olombendo which is worth RM2bil

ocbc, that is one of the largest fpsos around. Bumi Armada's meanwhile are mostly smaller and mid sized FPSOs that are 7 to 15 years of age.

RM0.60 is likely to be the price to Ananda for his stake. If they want to take over the entire company, that's a poor offer to the rest of the market, especially minority shareholders.

Ananda has to dispose at a discount due to his large stake.

RM0.60 is the discount to fair value.

Not sure what their estimate of the fair value is, but it should be in the RM0.70 to RM0.80 range.

Damn RM0.60 per share. I prefer to have just AK exit and MISC drive the company forward, probably by also then injecting it's FPSO assets into Bumi Armada.

Nothing specific or damning. Makes sense, the synergies are there for all to see. Bumi Armada is a cash cow. In the absence of material new projects, shareholders can expect dividends of between 5 to 8 sen per share next year onwards through to 2030.

I don't have the access.

Also they're speculating the announcement is imminent within the coming couple of weeks. Yet, zero price action.

Not sure how credible this is, I did some checks with friends in IBs, no one has heard anything.

https://www.upstreamonline.com/rigs-and-vessels/malaysian-fpso-mega-merger-talks-heat-up-will-a-deal-be-struck-this-time-/2-1-1734699

Discussions surrounding Malaysian shipping giant MISC’s potential acquisition of compatriot floating production, storage and offloading (FPSO) vessel contractor Bumi Armada have resurfaced, with Upstream's sources hinting that an official announcement may be imminent, possibly within the next one to two weeks.

Gabriel, Bumi Armada is working with Shell on pre-FEED studies relating to CCS offshore Sarawak. This has been going on since mid 2022. However, unsure when (if at all) there will be any formal award.