This article first appeared in The Edge Financial Daily on September 30, 2019

Bumi Armada Bhd
(Sept 27, 33.5 sen)
Maintain buy with a higher target price (TP) of 44 sen: Bumi Armada Bhd announced that its wholly-owned subsidiaries, Bumi Armada 98/2 Holdings (BA98/2) and Armada Floating Gas Storage Malta (AFGSM), had received financing commitments with an aggregate amount of up to US$75 million (RM314.25 million) from Mezzanine Equities, a wholly-owned subsidiary of Usaha Tegas.

We are positive about the news as it partially secures around 50% of the funding requirement for Armada’s equity portion in their joint venture with Shapoorji Pallonji Oil & Gas Pte Ltd for Oil and Natural Gas Corp Ltd’s (ONGC) Kakinada 98/2 floating production, storage and offloading (FPSO).

Recall that we estimated the capital expenditure required being around US$1 billion to US$1.2 billion. Thus, Bumi Armada’s portion is estimated at around US$60 million to US$75 million 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 do not discount the entrance of another project lender at a later stage for this project. With respect to the Maltese floating storage unit, we understand that it is simply just another project financier stepping in due to issues with timing.

We are keeping our “buy” rating on the stock with higher sum-of-parts-(SOP)-driven TP of 44 sen per share.

This is premised upon the incorporation of the ONGC Kakinada 98/2 FPSO into our SOP (+5 sen); assuming a firm extension period, 6.1% weighted average cost of capital, capital expenditure of US$1 billion and 80:20 debt equity funding structure and updating net debt figures from financial year 2018 (FY18) to the first half of FY19. — Hong Leong Investment Bank Research, Sept 27