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Bumi Armada Bhd
(Dec 5, RM1.04)
Maintain “buy” with target price (TP) of RM 1.69.
Since the beginning of this year up to last Thursday, Bumi Armada’s stock price has declined by 57.8%. There were various factors which affected the share price performance. These factors were related to corporate exercise activities undertaken by the company, the company’s syariah listing status, and most recently the slump in global crude oil prices. However, we believe that the share price weakness could also reflect a normalisation of its hitherto lofty valuation down towards the levels of its global peers.

In comparison to the shares of its global peers which normally trade in the teens, Bumi Armada has been trading at a large premium in excess of 20 times price earnings ratio (PER). As such, we could now be experiencing a period of normalisation of valuations.

In times of suppressed oil prices, the company noted that there might be slippages in terms of new floating production storage and offloading (FPSO) contract awards and offshore support vessel (OSV) rates. However, we believe that Bumi Armada will be able to weather the storm as the large portion of its order book consists of fixed long-term FPSO contracts with extension options and only 9% consists of OSV contracts.

As at Sept 30, Bumi Armada’s order book stood at RM21.8 billion, with extension options totalling RM11.8 billion. The order book consists of RM18.6 billion jobs from the FPSO segment, RM2billion from the OSV segment and RM1.2 billion from the transportation and installation segment. In terms of revenue contribution by geographical locations, 58% of the company’s revenue is derived from Asia-Pacific, 25% from Africa, 13% from Malaysia and only 4% from Latin America. — MIDF Research, Dec 5

This article first appeared in The Edge Financial Daily, on December 8, 2014.

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