This article first appeared in Capital, The Edge Malaysia Weekly on April 3, 2017 - April 9, 2017

THE shares of Ananda Krishnan-controlled Bumi Armada Bhd have rallied nearly 50% in the past four months to close at 75.5 sen last Wednesday. It is not immediately known if the billionaire is mulling another corporate manoeuvre to unlock value at the company but most analysts are not holding their breath. Only seven of the 18 analysts covering the stock had a “buy” call, versus nine“hold” and two “sell”.

Four, who updated their calls in March, reckon Bumi Armada — which booked a massive RM1.9 billion loss in FY2016, largely on RM1.74 billion in impairments — is worth at least 90 sen apiece or 19% more than current levels. Credit Suisse (95 sen target price) is the most bullish of the four while Public Investment Bank has a 90 sen target price, according to Bloomberg data.

Bumi Armada CEO Leon Harland reportedly described 2017 as “something of a transition year” as it completes major projects and prepares itself for the next stage of growth.

Investors who agree with the bulls and can stomach the risk have an alternative bet in Armada-C24, which has a 60 sen strike price and one-for-one conversion ratio. It expires on Nov 30, 2017 — the longest of the six structured warrants issued on the stock.

Closing at 19 sen last Wednesday, Armada-C24 is up 90% from 10 sen on Jan 31, beating the underlying stock’s 24% gains over the same two-month period.

The good sentiment may persist. In a March 22 “buy” note, UOB Kay Hian Research says 2017 may be a turnaround year for Bumi Armada as newsflow from late February indicates falling execution risk.

“Key projects of four clients (Enquest, Cairn Energy, Husky and Erin Energy) remain on track,” UOB said. “Overall, clients’ level of comfort and feedback show lower risk of project execution and termination, in our view.

“Although we expect the group’s finance costs to double y-o-y, this would be offset by start-up contributions from all four projects by early 2017, resulting in a turnaround of the group to our over RM0.3 billion profit forecast in 2017,” the research house concludes.

If Bumi Armada can rise 22% to UOB’s 92 sen target price in the coming eight months, Armada-C24 will theoretically be worth 68% more at 32 sen, assuming zero premium to the underlying stock.

Risks include unexpected low utilisation, further impairment surprise and poor performance and delivery of the FPSO (floating production, storage and offloading) jobs.

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