This article first appeared in The Edge Financial Daily on January 30, 2020
Bumi Armada Bhd
(Jan 29, 41 sen)
Maintain buy with an unchanged target price (TP) of 75 sen: Recall Woodside Energy Julimar Pty Ltd (WEJ) purported to have terminated a contract on March 4, 2016 by issuing a termination notice to Armada Balnaves Pte Ltd (ABPL). ABPL claimed this purported termination by WEJ amounted to a repudiation of the contract, which entitled ABPL to damages.
The Supreme Court delivered a judgement on Jan 24, 2020. As summarised, the Supreme Court ruled in favour of WEJ on ABPL’s main claim of repudiation of the contract.
ABPL was awarded a payment of US$2 million (RM8 million) for unpaid milestone claims and A$340,000 (RM900,000) for unpaid invoices. The court also ruled ABPL to pay A$1.6 million (RM4.4 million) to WEJ for reimbursement of miscellaneous charges.
Bumi Armada Bhd is currently reviewing the judgement and considering possible grounds for appeal. Any appeal is to be lodged by Feb 14, 2020.
This outcome is not expected to have a material impact on Bumi Armada’s financials as we have not imputed the scenario of Bumi Armada winning the arbitration case, ongoing for almost four years without any verdict. We believe Bumi Armada has reasonable grounds to appeal against the decision but we will still exclude the instance of Bumi Armada coming out with any form or amount of compensation, to be conservative.
Our “buy” call is maintained with a TP of 75 sen based on 13.8 times financial year ending Dec 31, 2020 (FY20) earnings per share — a 0.5 standard deviation below Yinson Holdings Bhd’s five-year historical mean average price-earnings of 17 times. Our TP of 75 sen implies a price-to-book value of 1.2 times.
We believe the worst is over for Bumi Armada. The company has resolved its debt issues and is improving operations progressively as seen in the first nine months of financial year ended Dec 31, 2019 figures.
Stable earnings for Bumi Armada are expected going forward. The company is focusing on improving existing operations and not planning to venture into any new projects until it lowers its net gearing significantly. — AllianceDBS Research, Jan 29