BUMI ARMADA BERHAD

KLSE (MYR): ARMADA (5210)

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Last Price

0.55

Today's Change

+0.03 (5.77%)

Day's Change

0.515 - 0.565

Trading Volume

96,957,000


46 people like this.

71,361 comment(s). Last comment by Robert Waters 12 minutes ago

Posted by Gabriel Khoo > 10 hours ago | Report Abuse

The RM437m impairment against the FPSO Kraken was calculated as the difference between the NBV of the asset and the VIU, with the NBV written down to the lower VIU. For information purposes, if the VIU is higher than the NBV, the NBV is not adjusted higher; however, this is not applicable in the case of the FPSO Kraken. The FPSO Kraken’s NBV is based on the original cost of construction, depreciated on a straight line basis over 25 years to its assumed residual value of 2% of the original cost. The depreciation period of 25 years encompasses both the firm charter period of eight years and the option charter period of 17 years. The VIU is calculated as net present value (NPV) of the future bareboat charter (BBC) cashflows of the FPSO, and the VIU naturally declines with the passing of time because FPSO charter contracts have a finite life. FPSO charter contracts are also split into two distinct periods, i.e. the firm charter period, and the option charter period, with the firm period usually paying the FPSO owner a high daily BBC rate, with BBC rate in the option period typically at just 30% the firm period’s BBC rate (i.e. 70% lower). As such, VIUs of FPSO charter contracts would naturally be higher if the firm charter period has many more years remaining, and become lower once the FPSO contract enters into the option charter period due to the lower BBC rate in the option period. The VIUs of FPSO charter contracts also fluctuate depending on the discount rate applied to calculate the NPV, and higher global interest rates over the past two years would have put the VIUs under pressure, we believe. Specifically in relation to the FPSO Kraken, its eight-year firm charter period is nearing its end on 31 Mar 2025F, upon which the 17-year option charter period will commence at significantly lower BBC rates. Also, the discount rate applied by BAB for the VIU calculation at end-2023 was 8.5%, which BAB confirmed was higher than the rate used in previous years’ calculations. The combination of these factors caused the FPSO Kraken’s VIU at end-2023 to fall under its NBV, resulting in the RM437m impairment. BAB emphasised at the post-results analyst briefing that the contracted cashflows for the FPSO Kraken remain unchanged. Therefore, our DCF valuation of the FPSO Kraken, which is included in our SOP-based target price, is not affected by the accounting, non-cash impairment of RM437m in 4Q23. We have applied a cost of equity discount rate of 13% to discount future FPSO Kraken cashflows to equity (Figure 4). BAB also said that the FPSO Kraken impairments had nothing to do with the failure of transformer equipment on the FPSO in May 2023.

Posted by Gabriel Khoo > 10 hours ago | Report Abuse

cashflows. This is potentially a near-term rerating catalyst. Other potential rerating catalysts include the FPSO Armada Sterling 5 (30% owned by BAB) securing final acceptance by the client, ONGC (ONGC IN, Not Rated) in the next few months. The FPSO received first oil at the Kakinada field, offshore India, on 7 Jan 2024, and is currently in the process of stabilising operations upon which it hopes to pass the ’72-hour’ test and then secure the certificate of final acceptance from ONGC. Once final acceptance is received, the FPSO can begin to receive its full contracted BBC rate, and the nine-year firm charter period can begin. At the moment, the FPSO is likely to be receiving a proportion of its full BBC rate, as it is producing oil (the first cargo offload was on 28 Feb 2024), in our view. However, ONGC will not pay the full BBC rate until final acceptance is secured by the FPSO. Meanwhile, a potential extension of the FPSO Armada TGT-1 charter from 14 Nov 2024F to 26 Aug 2031F, could add a further 15 sen to our SOP. A contract extension is currently being negotiated between BAB and the charterer Pharos Energy (PHAR LN, Not Rated). Separately, BAB said at the analyst briefing that it already received credit committee approvals from several banks to refinance the RM1.5bn sukuk borrowings which will be maturing on 4 Sep 2024F. Hence, the probability of a successful refinancing exercise is high, in our view. Downside risks include an unexpected decline in oil prices that may cause a pause in the pace of upstream FPSO capex spending by the oil majors and national oil companies, which could impact BAB’s growth prospects. BAB’s longer-term growth plans may also require equity funding in the medium term, leading to a potential rights issue, in our view.

rohank71

759 posts

Posted by rohank71 > 10 hours ago | Report Abuse

looks like the worst may be over with most analyst saying higher operating cashflow per quarters...vs highlighting the impairment. the impairment is neutral

Posted by ITreeinvestor > 10 hours ago | Report Abuse

CIMB raise target price to RM0.75
Selldown offers opportunity to accumulate

Posted by ITreeinvestor > 10 hours ago | Report Abuse

4Q23 core net profit of RM313m

Posted by ITreeinvestor > 10 hours ago | Report Abuse

Trading in BAB shares is likely to be dominated by retail flows, in our view,
and the average retail investor may find it difficult to understand the rationale for such an impairment; this caused BAB’s shares to plunge 11% yesterday after the lunchtime release of its FY23 results.

In our view, this is an opportunity for investors to accumulate BAB shares for a potential short-term rebound.

Posted by ITreeinvestor > 10 hours ago | Report Abuse

BAB emphasised at the post-results analyst briefing that the contracted cashflows
for the FPSO Kraken remain unchanged.

Posted by ITreeinvestor > 10 hours ago | Report Abuse

Separately, BAB said at the analyst briefing that it already received credit
committee approvals from several banks to refinance the RM1.5bn sukuk
borrowings which will be maturing on 4 Sep 2024F.

nikicheong

2,290 posts

Posted by nikicheong > 9 hours ago | Report Abuse

Anyone have the research report from UOB Bank? Appreciate if you could share.

Penarak

70 posts

Posted by Penarak > 9 hours ago | Report Abuse

Everywhere say good but share price not good !

Posted by Robert Waters > 9 hours ago | Report Abuse

Thank you for the CIMB Raymond Yapp update, Mkt. I respect Raymond. He won the award for the best Oil and Gas Analyst. His endorsment means a lot.
Greedy Gary, on the other hand, has no credibility with me. He is a manipulator. If he impairs, I suspect he does it for a personal benefit, rather than to actually reflects true value of the asset. In any case, he succeded in creating turmoil again.
The good part is that stock will go up when he finally is kicked out.

nikicheong

2,290 posts

Posted by nikicheong > 9 hours ago | Report Abuse

Raymond's reporting is always the most detailed. The others like Maybank / Public Bank just write surface-level stuff to cari makan.

Posted by marlboroman2 > 9 hours ago | Report Abuse

nice rebound, hopefully fade back most of yesterday's knee-jerk reaction

rohank71

759 posts

Posted by rohank71 > 9 hours ago | Report Abuse

worst may be over... couldn't load up at 50... Happy with what I have. back to 60 soon.

nikicheong

2,290 posts

Posted by nikicheong > 9 hours ago | Report Abuse

Now, share price-wise, we are back where we were 2 weeks ago.

rohank71

759 posts

Posted by rohank71 > 9 hours ago | Report Abuse

soon once all the confusion is over... it will be back above 60. this who have sold yesterday should accumulate now.

rohank71

759 posts

Posted by rohank71 > 9 hours ago | Report Abuse

cashflow is most important not P&L

rohank71

759 posts

Posted by rohank71 > 8 hours ago | Report Abuse

if not for the impairment..BA would be now above 63.

sammmy

1,108 posts

Posted by sammmy > 8 hours ago | Report Abuse

After sell down yesterday, the share price much more easy to push up now. Those who collected at 0.515-0.530 , easily 10% profit in near future

zonefinder

230 posts

Posted by zonefinder > 8 hours ago | Report Abuse

Look at it another way, Rohank, the impairment is giving another chance for long termers to load up at better prices..

zonefinder

230 posts

Posted by zonefinder > 8 hours ago | Report Abuse

Gabriel, thanks for the comprehensive explanation...Glad to see more robust and substantive discussions here instead of the shitty pot shots ...cheers!

Posted by Robert Waters > 8 hours ago | Report Abuse

Zonefinder, explanation is from Raymond Yapp. The O&G Analyst #1 from Singapore (before Malaysia). Grateful for Raymond to include and Mkt888 to provide link.
The analysis from superficial bankers can be skipped.

zonefinder

230 posts

Posted by zonefinder > 7 hours ago | Report Abuse

Thanks Robert, I realized it after I read Raymond's analysis. Thought Gabriel was an insider..haha..

Posted by OrlandoOilWeb3AI > 7 hours ago | Report Abuse

IB consensus impairment doesn't matter

Then why do it? Why do the impairment?

rohank71

759 posts

Posted by rohank71 > 7 hours ago | Report Abuse

my bad I was overly Conservative... wanted to buy closer to my last buying price at 48 and 49...anyway congrats to all those who bought and took the bear by its b*lls. let's see it break 63 soon.

nikicheong

2,290 posts

Posted by nikicheong > 7 hours ago | Report Abuse

From RHB's report: Bumi Armada entered into a non-binding agreement to engineer a carbon capture injection
system for a gas field in Indonesia.

zonefinder

230 posts

Posted by zonefinder > 6 hours ago | Report Abuse

Orlando, blame it on the accountants. To provide a true and fair view which sometimes screws perception in the market.

Posted by Gabriel Khoo > 6 hours ago | Report Abuse

Nick how do you interpret the last sentense of this from RHB
e sizeable impairment on Armada Kraken caught us by surprise, and management explained that it was mainly due to the value-in-use (VIU) of this vessel falling significantly below its net book value (NBV) approaching the end of firm period (Mar 205), coupled with a hike in the discount rate in arriving at the VIU. It was highlighted that there has been no change to contracted cash flows and the recent transformer failure did not affect the VIU. BAB is currently in talks with the client on the potential extension and the renewal rate could be 50-70% lower than its firm contract. T

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

Impairment is done using future cash flow

This impairment review requested by the banks for refinancing facilities?

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

The only way impairment doesn't matter is because carrying value is the one which is wrong

nikicheong

2,290 posts

Posted by nikicheong > 5 hours ago | Report Abuse

Gabriel, the least rate will drop by nearly 70%, that much is certain.

1. Per Enquest's last operational update: "The Group also expects unit margins to improve as the Kraken FPSO lease rate reduces by c. 70% from 1 April 2025, while the culmination of major projects at SVT will crystallise significant operating cost reductions and emission reductions in 2026 and beyond."

2. Basic calculation from the contract values:

Firm: USD1,400mil for 8yrs = USD175.00mil/annum
Option: USD924mil for 17yrs = USD54.35mil/annum

54.35/175 = 31.1% (i.e. reduction of 68.9% which matches Enquest's statement)

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

Give the management the benefit of doubt that there is no element of BS

Then it is lousy management

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

If carry value is wrong means depreciation is wrong

If depreciation wrong means the previous QR profits overstated

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

This impairment if 30m 50m is ok... but the amount is so big

Missed the elephant in the room?

Posted by OrlandoOilWeb3AI > 5 hours ago | Report Abuse

Hope the IBs back up their Doesn't Matter by asking their customers to buy

Posted by EatCoconutCanWin > 5 hours ago | Report Abuse

this counter loss money, who is the idio push up ...

Rwan88

20 posts

Posted by Rwan88 > 4 hours ago | Report Abuse

Trap maybe

Posted by ITreeinvestor > 4 hours ago | Report Abuse

On a positive note, its Armada Sterling V 98/2 has achieved first oil in January 2024 and is looking forward to achieving first gas by April 2024

Posted by marlboroman2 > 3 hours ago | Report Abuse

As long as there is no impairment on Brent Oil price at USD 80 per barrel, BA should theoretically head on to 80 sens TP.

Posted by Robert Waters > 3 hours ago | Report Abuse

There is certain truth to it that the public should know when net book value of the asset exceeds current value in use due to the higher interest rates. This discounting of Future Payments at 8.5% result in lower valuation. The interest rates changed, hence the disclosure. Nothing to do with option charter - it was known for years.

However, Greedy Gary made a spectacle out of it. He could have kept it in asset valuation rather than allowing to crash earnings. But that is Greedy Gary, he has only one concern, his free shares. Price fluctuation do not concern him.

Posted by Robert Waters > 3 hours ago | Report Abuse

My thanks to marlboro man. Let us make things simple. Those depreciation models give investors headache. Me inclucing.
To RM0.80 target price based on our internal, i3 forum projection.

Posted by marlboroman2 > 3 hours ago | Report Abuse

Yes, Robert, life is suppose to be simple, and that triangle drawing (VIU vs NBV) with yellow shades confuses my simple mind i.e. can't make any sense of it. Anyway, cash is king and BA's cash flows looks solid so we continue to wait and see

Posted by proudbeggar > 1 hour ago | Report Abuse

Just like that, it was announced a half billion (RM 514.4m) write off or write down in the value of Kraken & SC assets, apparently due to " caused by accounting depreciation recognised
on a straight-line basis and the reduction in the charter revenue during the optional
extension period" which was already known from the beginning and therefore should have been provided for. This half a bln bucks 514m writeoff is more than half the pre-adjusted 4 quarters profit of 883 ( +386 4qtr 497 b/f 3qtr). Not a very plausible answer.

Posted by proudbeggar > 50 minutes ago | Report Abuse

And it will go into the official BAB 2023 Annual Report. "What kinda depreciation accounting is this " should be asked by the external Auditors.

Felix888999

1,103 posts

Posted by Felix888999 > 49 minutes ago | Report Abuse

Out of sudden the BA accountant realized the straight line depreciation method is wrong after running that FPSO for 8 donkey years. All of their FPSOs could have the same problem.

Mana sekolah this accountant? Accountant from ah beng workshop?

nikicheong

2,290 posts

Posted by nikicheong > 44 minutes ago | Report Abuse

Shoplot accountants the lot of them.

Need to ask their CFO who pronounces millions as "minions"

Felix888999

1,103 posts

Posted by Felix888999 > 39 minutes ago | Report Abuse

Ba-ba-ba-ba-ba-na-na
Ba-ba-ba-ba-ba-na-na
Banana-ah-ah
Potato-na-ah-ah
Banana-ah-ah

Adui Potato and Banana accountants we have in BA.

Posted by nikicheong > 4 minutes ago | Report Abuse

Shoplot accountants the lot of them.

Need to ask their CFO who pronounces millions as "minions"

Posted by Robert Waters > 12 minutes ago | Report Abuse

This devaluation of vessel applies to every bond. When interest rate changes, bond can lose half of its value.
That is why they declare them 'held to maturity' and do not mess with the bond market value at the moment of given interest rate.

That is what BAB should be doing. Avoid scaring investors. Stick to project linear data model.
You would only change it if you want to sell the vessel (or bond), or get financing for it.

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