Investment Highlights

• We retain our BUY on Bumi Armada with an unchanged sum-of-parts (SOP) based fair value of RM0.68/share. This implies CY24F PE of 5x, below its 5-year average of 31x. Our fair value reflects a neutral ESG rating of 3-star.

• Bumi Armada’s wholly-owned Armada Akia BV, has signed a Production Sharing Contract (PSC) with the Ministry of Energy and Mineral Resources of Indonesia to enter into a 51:49 joint venture as the operator together with its partner Pexco Tarakan NV for the Akia exploration block in the Tarakan Basin, North Kalimantan, Indonesia (Akia PSC).

• The Akia exploration block contains the Aster and Tulip oil and gas discoveries, which has an estimated recoverable resource of 860 BCF of gas and 60 MMboe of oil and condensate.

• Bumi Armada plans to acquire new 3D seismic for the Tulip discovery to evaluate the potential for a fast-track development. At this juncture, Bumi Armada has yet to provide visibility over the expected timeline.

• Should the seismic results appear favourable, we estimate that the Akia PSC could provide an incremental SOP of +18% to Bumi Armada’s SOP, comprising of: (I) the FPSO option, assuming a capex of US$500mil with a project IRR of 12%, a 70:30 debt-to-equity ratio and a WACC of 6.5%, which is expected to generate incremental SOP of 13%; (II) 51% share on assumptions of annual production of 3,000 bboe for a period of 20 years with average Brent crude price of US$65 per barrel, which is expected to generate incremental SOP of 5%.

• While this project could be value accretive, we estimate endFY25F net gearing to rise to 53% from 21% following the inclusion of the FPSO debt. However, we maintain our forecasts and valuations for now pending further details of the project.

• Bumi Armada currently trades at a compelling FY24F PE of 4x vs. the FBM KLCI’s 1-year forward PE of 13x. We believe this unjustified given the group’s the sustainable earnings stream from its FPSO operations as well as an improving balance sheet.

Source: AmInvest Research - 27 Sept 2023