Bumi Armada makes strong bids AFFIN HOLDINGS BHD
Hold (maintain) Target price RM2.96
Separately, Oil & Natural Gas Corporation (ONGC) has extended for the third time the deadline for the submission of bids for its Cluster 7 FPSO tender, which offers a nine-year primary term.
Bumi is tipped as a potential frontrunner while M3nergy Bhd is also believed to have bid. Indian yards Pipavav Shipyard and Mercator are also considered serious bidders.
This contract is attracting major interest because it offers a nine-year primary term that can be extended by another seven years in separate one-year options. ONGC is looking for a FPSO vessel with a storage capacity of at least 510,000 barrels. At least four contractors are in the running for the contract.
On the flip side, for the North Malay Basin contract, according to a report by Upstream, Us-based Hess is understood to have awarded the three-year primary charter to Singaporebased Emas Offshore to bring the development onstream by year-end.
Bumi is one of the bidders for the three-year North Malay Basin charter. Other bidders include MISC Bhd and Ramunia Holdings Bhd.
Hess is aiming at early development of seven fields – Kamelia, Zetung, Gajah, Melati, Anggerik, Kesumba and Bergading – with a combined gas resource potential of 1.3tr cu m. It is crucial for it to finalise the deal this month in order to meet the target of starting production by year-end.
The update on North Malay Basin is a disappointment but we are encouraged by the updates on Madura and Cluster 7.
Bumi’s progress on the two fields bodes well for management’s target of securing two FPSO contracts annually with day rates in the range of US$180,000 to US$240,000. .
Presently, Bumi Armada has an order book of about Rm7bil excluding extension options of Rm3bil. Bumi is now at the sixth place in the global FPSO league and hopes to join the ranks of the top four in three years time. SMALL CAP By CIMB Research Remain Neutral SMALL capital companies showed signs of recovery in their fourth quarter 2011 results after two quarters of miserable results, pulling up the FBM Small Cap Index (SCI) to outperform the market.
About 12% of the companies beat analysts’ result expectations compared to none in the second and third quarters. 35% missed analysts’ forecast, which was an improvement from 53% in the third quarter.
Although results have improved, we continue to rate the small-cap sector neutral after downgrading it from overweight in Sept last year. Small caps would underperform the market in the event of a flight to safety.
We think the sector’s 8.8 times price-toearnings ratio is attractive, standing at a 40% discount to the composite index’s 14.3 times as the sector usually trades at 25% and 35% discount to the market. However, the higher discount is not unexpected given the uncertain equity market conditions.
Malaysian strategist remained cautious due to external and general election risks and a slowing economy. As such, it would be tough for the small-cap sector to continue outperforming over the next few quarters.
For now, some of the small-cap companies such as Cocoaland Holdings Bhd and Asia File Corp Bhd appear to be weathering better the volatility of raw material prices and the slowdown in the United States and Europe. This could be one of the reasons for small caps’ outperformance so far this year.
The FBM SCI has got off to a great start this year. It is up 9.2% compared to a gain of only 3.1% for the KLCI. The SCI has outperformed the KLCI since end-sept last year, rising 22.5% compared to 13.8% for KLCI, when the local market bottomed out after correcting since July.
Some of the biggest gainers so far are Xingquan International Sports Holdings Ltd, Perisai Petroleum Teknologi Bhd and Muhibbah Engineering (M) Bhd. Perisai remains our top small-cap pick as its valuation remains attractive despite surging 83.3% since the end of last September. We maintain a trading buy call on Muhibbah Engineering, anchored by a potential positive outcome for the Asia Petroleum Hub.
United Malayan Land is also given a trading buy call as its financial year 2011 results were 10% above our forecast and 21% above consensus numbers because of better-than-expected margins from its township projects.
One neutral call is Jobstreet Corp Bhd as the company will invest in marketing while hiring staffers to combat weak sentiment and stiff competition exerting downward pressure on pricing. The other is Uchi Technologies Bhd as the European financial crisis continues to dampen demand and sales will be pressured by a weak US dollar against the ringgit.
The biggest losers, rated underperform, are Malaysian Genomics Resource Centre Bhd, Latexx Partners Bhd and MTD-ACPI Engineering Bhd. In Feb, we also downgraded two stocks – Pelikan, from neutral to underperform and United Malayan Land, from outperform to trading buy. AFFIN is targeting lower loans growth of between 10% and 11% for the current financial year ending Dec 31 against a growth of 14.4% in 2011 in view of external uncertainties and expected slowdown in the economy.
However, there will be no change in lending as it is still targeting balance expansion between retail (hire purchase and mortgage) and business loans supported by the Economic Transformation Programme. Meanwhile loans is still strong and should support the target.
On the new responsible lending guideline, there is no significant impact given that it will continue to focus on middle to high-end segments and selective sectors.
Cost-to-income ratio (CIR) is expected to be between 47% and 48% and credit costs guidance between 20 and 25 basis points.
On expansion, Affin’s collaboration with Hong Kong-based Bank of East Asia Ltd (BEA) is ongoing and has seen increased levels of cross border flow.
Affin has said it would collaborate with its shareholder, BEA, to offer Islamic banking products in China. However, contrary to recent reports, China still lacks Islamic framework for the business to establish a foothold.
Affin Bank is still interested to acquire an 80% stake in Indonesia’s PT Bank Ina Perdana and the recent meeting with the Indonesian authority could result in follow up action.
Given its target of continued earnings growth, dividend should be sustainable if not improved. Overall, we are more conservative in our loansgrowth projection of 7% but are in line with management on CIR and credit costs.
Thus, our 2012 financial year return on equity projection of 9.5% is slightly below management’s key performance indicator of 9.6%. Outperformed (maintain) Target price RM4.80 OFFSHORE oilfield service provider, Bumi Armada Bhd, has made good progress in its bid to supply floating production storage and offloading (FPSO) unit in Indonesia Madura field as well as tipped to be the potential frontrunner for India’s Cluster 7 contract.
Upstream reported that Bumi was among the six contenders that passed the preliminary round to secure the FPSO contract for Canadabased Husky Energy’s Madura field off east Java, which offered an attractive 10-year primary term with a five-year extension option.
Initially, more than 40 companies attended the pre-bid meeting but the figure has been reduced to six due to the high bar set for a complex FPSO vessel capable of handling sour gas and condensate from the Madura field.