AmInvestment Bank maintains hold on Bumi Armada on stable finances
KUCHING: In light of new salient findings, AmInvestment Bank Bhd (AmInvestment Bank) maintained its ‘hold’ call on Bumi Armada Bhd ( BumiArmada) with unchanged forecasts and a fair value of RM0.79 per share.
In a company report, the bank said they came to this decision following a meet with Bumi Armada’s management recently where they were reassured on the group’s current more stable financial situation.
According the AmInvestment Bank, Bumi Armada’s management strongly refuted that they will need to resort to a right issues for major project financing.
This comes as the group still has an untapped US$ 1.5 billion or RM6.3 billion multi- currency euro medium-term note programme which was proposed back in 2013.
“In the event the group clinches a major project, its management has also guided that it will have a strategic partner to share the risk and the capital requirements, while also exploring ways to recycle the existing debt of its completed projects by negotiating for a lower equity-to- debt ratio arrangement.
“If a short-term cash need arises, the group can issue a private placement, as a 10 per cent stake could translate to RM420 million,” added the bank in its report.
Beyond that, AmInvestment Bank also estimates that the group would still be able to take on an additional debt of RM1.5 billion in FY18F.
“We estimate that this is sufficient to take on two large floating, production, storage and offloading (FPSO) with a capital expenditure of US$ 1 billion each, assuming a 50 per cent equity stake by the group,” guided the bank.
Despite this capacity, management has indicated that the group would likely only take on one large project at a time, given the extensive strain they’ve experienced last year from taking on four ongoing projects.
Looking forward to potential project awards, Bumi Amarda has teamed up with Indian conglomerate, Shapoorji Pallonji Group, to bid for the Oil and Natural Gas Corp’s KG- DWN- 982 deep-water development FPSO contract which is worth over US$ 1 billion.
But if that falls through, the group is also looking at a similarly large FPSO prospects for Petroleo Brasileiro S.A’s Buzios 5, and Eni S.P.A’s deep water ZabaZaba-Etan project in OPL 245 off the coast of Nigeria.
Overall, AmInvestment Bank expects Bumi Armada’s earnings from the second quarter of financial year 2017 (2QFY17) onwards to potentially improve from the full recognition of the groups FPSO Olombendo’s and Kraken.
“Despite this, we remain cautious on the company’s nearterm earnings trajectory given the uncertainties arising from kraken’s lower charter payments amid loss-inducing weak offshore supply vessel charter rates.