KUALA LUMPUR (Sept 26): CGS-CIMB Research had raised its target price on Bumi Armada Bhd to 44 sen from 40 sen previously, as it expects the extension of the group’s 50%-owned Sterling-1 FPSO charter will provide additional certainty to its cashflow.

In a Sept 25 note, senior analyst Raymond Yap said the extension would keep the vessel occupied for up to 15 more years. 

The original charter by Oil and Natural Gas Corp Ltd (ONGC) was for seven years and six annual options from April 2013 onwards, with the group recently reaching the end of the seven firm years in April 2020.

ONGC decided not to exercise the six annual options, as it was interested in extending the charter of the vessel for an even longer period as the field production is still robust.

ONGC extended the charter for another 10 firm years and five annual options, which commenced on Sept 25.

“The good news is that Sterling-1 has locked in additional cashflows from the charter for an additional four years (the final four years of the 10-year firm period), plus the potential to secure cashflows for five optional years to follow. 

“Our SOP-based target price has increased because of the four additional firm years as noted above, and we also include in 75% of the value of options,” said Yap.

The analyst also raised his FY20 to FY22 core earnings per share (EPS) forecasts by between 8% and 12%, based on the assumption that the remaining net book value of the FPSO will be depreciated over the next 15 years, as compared to 13 years previously, which could potentially halve the annual depreciation expense.

Bumi Armada closed at 26.5 sen yesterday, giving a market capitalisation of RM1.56 billion.