This article first appeared in The Edge Financial Daily on August 15, 2017
Bumi Armada Bhd
(Aug 14, 70 sen)
Reiterate outperform with an unchanged target price (TP) of 90 sen: Bumi Armada Bhd’s wholly-owned subsidiary Bumi Armada Caspian LLC has signed a US$134 million (RM574.86 million) supplementary agreement with LUKOIL-Nizhnevolzhskneft LLC (LUKOIL) for additional engineering, procurement, construction and installation (EPCI) works. This will involve the Armada Installer and Armada Constructor vessels, and is expected to be completed in the second half of next year.
We are pleased with this award, as it not only reaffirms Bumi Armada’s execution capabilities but also increases the utilisation of its vessels thus ensuring costs are managed more effectively. No changes are made to our earnings estimates as we deem this part of our annual RM800 million order book replenishment. We reiterate our “outperform” recommendation on Bumi Armada with an unchanged TP of 90 sen derived by our discounted cash flow (DCF) approach.
The additional scope will involve Bumi Armada Caspian’s marine spread to lay subsea pipelines and undertake post-trenching and back-filling works on sections of the Filanovsky field in the Russian sector of the Caspian Sea. The EPCI of approximately 20km of various pipelines will involve the Armada Installer and Armada Constructor vessels. LUKOIL has been a client of Bumi Armada in the Caspian Sea since 2012.
Bumi Armada’s share price took a recent beating again, in line with the overall weaker regional markets amid a rise in geopolitical tensions and a spike in oil price volatilities. Fundamentals of the company are intact, nonetheless, as we see this as an opportunity to accumulate Bumi Armada at this juncture. This year will see a boost in earnings from the contributions of four major floating production storage and offloading & floating gas solution contracts. Our “outperform” call with an unchanged TP of 90 sen is based on our 10-year DCF with a weighted average capital cost of 6.2%. — PublicInvest Research, Aug 14