ARMADA (5210) - MQ Research: Reiterates outperform on Bumi Armada
Macquarie Equities Research (MQ Research) managed to meet up with the management of Bumi Armada (BAB) for
an update on 3 of its new floating production storage and offloading
(FPSOs) which is scheduled for commissioning in 1Q to 2Q 2017. MQ
Research has also reiterated its outperform rating on BAB with an unchanged price target of RM0.81. BAB closed at RM0.615 yesterday, more than 30% below MQ Research’s price target of RM0.81.
Event
- MQ Research reiterates their Outperform rating on BAB with an unchanged 12-month price target of RM0.81 (32% TSR). MQ Research met management and are pleased to hear that transportation and installation of its three new FPSOs are progressing as planned. MQ Research expects the commissioning of three new FPSOs in 1Q-2Q17 could lift 17-18E FCF/EV to 9%-10%, thereby re-rating the share price. Elsewhere, MQ Research are not overly concerned about possible asset impairments, which have no cashflow impact and are partly priced in (share price at 0.6x book value).
Impact
- Three new FPSOs (combined capex of US$2.8bn) are on schedule for commissioning in 1Q-2Q17. Armada Olombendo and Karapan Armada Sterling III are undergoing installation works in Angola and Indonesia respectively, while Armada Kraken is on her way to the UK North Sea. These FPSOs target to achieve first oil in Mar17 (Olombendo, Sterling III) and Apr17 (Kraken). Upon commissioning, the three FPSOs should contribute a combined charter rates of US$474m (RM2.1bn) / year.
- BAB is eyeing several FPSO projects, such as Repsol’s Ca Rong Do project (Vietnam), ONGC’s KG-DWN-98/2 project (India) and Eni’s ZabaZaba project (Nigeria). Of which, Repsol and ONGC projects are expected to be awarded in 2017. MQ Research did not impute new FPSO contract win in their forecasts and securing these contracts should be earnings accretive. That said, MQ Research’s key investment focus is still on timely delivery of FPSO projects in hand.
- Firmer oil prices, coupled with completion of financial restructuring and delivery of first oil from Scolty/Crathes fields have, in MQ Research‘s view, improved the business prospects for EnQuest (ENQ LN, £0.53 , Outperform, TP: £0.79, Kate Sloan). To recap, EnQuest is the operator for Kraken field and collection of Armada Kraken charter fees of US$440-450k/d hinges heavily on EnQuest’s (improving) financial health.
- MQ Research sees possible asset impairments in 4Q16 results as the OSV market has remained weak. However, MQ Research are not overly concerned, as these impairments (if booked) have little financial implication: (i) BAB’s debt covenants are largely based on cash flow and/or EBITDA; and (ii) at 0.6x book value, BAB’s share price has already priced in lower asset value – its market cap is at a RM2.7bn discount to the shareholders fund.
Earnings and Target Price Revision
- No change.
Price Catalyst
- 12-month price target: RM0.81 based on a Sum of Parts methodology.
- Catalyst: Timely commissioning of three new FPSOs over 1Q-2Q17.
Action and Recommendation
- MQ Research - Outperform reiterated.
Source: Macquarie Research - 18 Jan 2017
ARMADA (5210) - MQ Research: Reiterates outperform on Bumi Armada
http://klse.i3investor.com/blogs/kltrader/114034.jsp
