Value emerging in Bumi Armada after recent selldown

The company said the agreement, signed between its unit Armada Balnaves Pte Ltd (ABPL) and Apache Energy Ltd in September 2011, was to provide and charter a floating production, storage and offloading (FPSO) vessel for an initial fixed-term charter of four years, expiring in August 2018. (File picture shows one of the vessels owned by Bymi Armada)

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research sees value emerging in Bumi Armada Bhd after the recent selldown. 

It said on Wednesday the international offshore oilfield services provider, which hit a high of 84 sen on Aug 16, slid 15.5% to close at 71 sen on Tuesday.

“The selldown was mainly driven by weakened sentiment on O&G stocks amid consolidation in Brent oil prices after hitting a three month high near US$52 a barrel on Aug 19.

“The above was augmented by investors’ concern over the outcome from the court dispute over FPSO Claire claims, as the market may have overpriced the risks of the termination of Armada Claire by extending this risk to Armada’s other projects,” it said.

HLIB Research pointed out that at 71 sen, Armada is trading at 0.66 times price-to-book value (P/B), which is 32% below 10-year average 0.98 times. 

It believes such steep valuations have priced in most of the negatives and provided sufficient margin of safety to cushion further sharp share price decline.

“Look beyond 2016. Although the company is still going through near-term pain, we believe Armada’s ongoing projects have low termination risks. 

“While core FY16 PATAMI is expected to drop 34% on-year, rerating catalysts are in the pipeline,” it added.

HLIB Research said the catalysts are deliveries and successful execution of its four new FPSO and FGS contributions (to be delivered from 2017 onwards with very long-term contract tenures of eight 8 to 18 years which are positive for cash flow visibility).

It pointed out the normalised tax rate and better income contributions from associates and JV assets; and also the recovery of utilisation in the OSV and T&I. Hence, core net profit is expected to shoot up by 54% CAGR from 2016- 2018.

“The stock is ripe for imminent technical rebound after the recent share prices rout, as the formation of a spinning top indicates potential upside reversal from a grossly oversold position. 

“A decisive breakout above 74.5 sen (50% FR) will spur prices higher towards 77 sen (38.2% FR) and our LT objective at 84 sen (six month high). On the flip side, key supports are 69.5 sen and 66.5 sen. Cut loss at 65.5 sen,” it said.