Bumi Armada’s supplementary contract with Lukoil positive
KUCHING: Bumi Armada Bhd’s (Bumi Armada) supplementary contract with Lukoil-Nizhnevolzhskneft LLC ( Lukoil) has been viewed positively by analysts.
In a press release filed on Bursa Malaysia, Bumi Armada revealed that the supplementary agreement with Lukoil is for additional Engineering, Procurement, Construction and Installation (EPCI) scope.
“The additional scope will involve Bumi Armada’s Subsea Construction assets to lay subsea pipelines and undertake post trenching and back-filling works on sections of the Filanovsky field in the Russian sector of the Caspian Sea. The works are expected to be completed in the second half of 2018 and the total contract value is US$134 million (approximately RM576 million),” the group said.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), this contract is positive to Bumi Armada, strengthening the group’s transport and installation (T&I) track record and the client relationship with Lukoil.
Overall, the research arm expected the offshore marine services (OMS) segment to improve from operating losses of RM80.1 million in financial year 2016 (FY16) largely backed lower depreciation post RM733 million impairment charge in the fourth quarter of 2016 (4Q16).
“The new supplementary contract will increase T&I activities marginally, in our view, given that these assets have been working with Lukoil,” Kenanga Research said.
Thus, the research arm made no changes to its earnings forecasts pending announcement of the 2Q17 results end of this month with the expectation of slight improvement quarter on quarter (q-o-q) and stronger second half of 2017 (2H17) with Kraken in the picture.
Meanwhile, AmInvestment Bank Bhd (AmInvestment Bank) estimated that the fresh Lukoil award translates to 3.4-fold the research firm’s FY17F revenue for the group’s transport and installation activities.
“While this could raise our FY17F-FY18F earnings by five per cent-seven per cent, we maintain our forecasts for now pending the group’s 2QFY17 results, which is scheduled to be released on August 25,” it said.
All in, AmInvestment Bank maintained its ‘hold’ recommendation on Bumi Armada with an unchanged fair value of RM0.79 per share based on a 20 per cent discount to its sum-of-parts (SOP) valuation of RM0.99 per share.
As for Kenaga Research, it noted that the share price is currently trading at undemanding valuation of 9.5-fold FY18 price earnings ratio (PER).
Kenanga Research thus maintained its ‘outperform’ call on the stock with an unchanged SOPdriven target price of RM0.90 per share in view of better q-o-q earnings improvement with Kraken in the picture.
“After hitting first oil in January this year, Bumi Armada has been recognising partial charter income as revenue and will be able to recognise full charter rates upon full acceptance,” the research arm said.