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Armada announced it has received financing commitments for its 2 wholly owned subsidiaries – BA98/2 and AFGSM, for an aggregate amount of up to USD75m from Usaha Tegas. We are positive on this as it secures the funding requirements for the Kakinada 98/2 job as at present. Maintain BUY on the counter with higher TP of RM0.44 as we update net debt figures and factor in the newly secured ONGC Kakinada 98/2 FPSO into our SOP.

Armada announced that its wholly-owned subsidiaries, Bumi Armada 98/2 Holdings (BA98/2) and Armada Floating Gas Storage Malta (AFGSM), have received financing commitments with an aggregate amount of up to USD75m from Mezzanine Equities, a wholly-owned subsidiary of Usaha Tegas. The commitments comprises of (i) up to USD30m (RM128m) 3-year term loan facility made available to BA98/2 and (ii) up to USD45m (RM189m) 6-year term loan facility commitment to AFGSM.

BA98/2. We are positive on the news as it partially secures c.50% of the funding requirement for Armada’s equity portion in their JV with Shapoorji Pallonji (SP) for ONGC’s Kakinada 98/2 FPSO. Recall that we estimated the capex required being c.USD1.0-1.2bn. Thus, Armada’s portion is estimated at c.USD60m-75m for its equity stake assuming a debt equity ratio of 80:20. This news should put to rest market jitters of a cash call for funding this project for now, as it is sufficient to cover its current requirements. We don’t discount the entrance of another project lender at a later stage for this project. With respect to the Maltese FSU, we understand that it is simply just another project financier stepping in due to issues with timing.

Monetisation of assets ongoing. Armada is progressively monetising its assets (certain idle OMS and FPO assets) at commercially acceptable pricing. We understand that FPSO Claire is not tied to its legal wrangling with Woodside Petroleum and as such, can be sold or redeployed without impact to the case.

Forecast. Unchanged.

Maintain BUY, with a higher TP: RM0.44. We are keeping our BUY rating on the stock with higher SOP-driven TP of RM0.44/share (from RM0.34 previously). This is premised upon (i) the incorporation of the ONGC Kakinada 98/2 FPSO to our SOP (+RM0.05); assuming firm and extension period, 6.1% WACC, capex of USD1bn and 80:20 debt equity funding structure and (ii) updating net debt figures from FY18 to 1H19. Our TP of RM0.44 has an implied FY19 P/E of 10.5x and FY19 P/B of 0.7x. Downside risk to our call would be earnings disappointment arising from Kraken operations and significant highly dilutive cash calls.

Source: Hong Leong Investment Bank Research - 27 Sept 2019


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