Bumi Armada forecast stays despite Angola oilfield project


  • Business
  • Wednesday, 02 Apr 2014

Bumi Armada Bhd

By HwangDBS Vickers Research

Buy

Target Price: RM4.50

HWANGDBS Vickers Research said it had not revised its forecasts for now, following Bumi Armada’s announcement that it has received a letter of intent (LoI) from Italian oil major Eni SpA for a deepwater oilfield offshore Angola,

It said the Angola floating production, storage and offloading vessel (FPSO) project was likely to be classified as a finance lease, which would mean lower profit contribution over the conversion period of 31 months.

The FPSO job is for the chartering, operation and maintenance of a FPSO for deployment at Block 15/06, East Hub offshore Angola for an indicative value of US$2.9bil (RM9.5bil).

It said the final contract was likely to be for a 12-year period with eight one-year extension options, implying US$660,000 (RM2.15mil) daily charter rate. This will lift Bumi Armada’s order book by 72% to RM22.7bil.

The total capital expenditure required is estimated at US$1.5bil, which could lift Bumi Armada’s net gearing to 1.6 times by financial year 2016 (FY16), still lower than management’s threshold of 2 times, it added.

The research house noted Bumi Armada’s strong execution track record in the FPSO business which would suggest more contracts in the pipeline with its 10 ongoing FPSO tenders, especially the 10-year Madura FPSO job in Indonesia, of which the group was a clear frontrunner.

HwangDBS said valuation remains undemanding at 17 times FY14 price-earnings ratio, the lowest since its initial public offering in July 2011.

It has maintained its Buy call on Bumi Armada with a target price of RM4.50 based on 20 times FY14 forecast earnings per share.

Cahya Mata Sarawak Bhd

By RHB Research Institute

Buy (maintained)

Target Price: RM12.20

Cahya Mata Sarawak (CMS) has proposed a one-into-two share split followed by a two-for-one bonus share issue to raise the number of shares to 1,087 million.

According to RHB Research, this exercise is timely to improve the stock’s liquidity as its average trading volume stood at barely 700,000 shares per day over the past six months.

On completion of the exercises, the share price will likely be adjusted to RM3.26 from the RM9.80 level, thus making it more affordable to retail investors, it added.

Meanwhile, the research house said CMS was set to benefit from attractive power tariffs under the Sarawak Corridor of Renewable Energy and the economic multiplier effects in other industries.

It also sees progress in its Malaysian Phosphate Additives Sdn Bhd project while there is potential upside to 51%-owned Samalaju Property Development Sdn Bhd.

StarBiz reported that CMS was looking at taking over state-controlled Sacofa Sdn Bhd, an infrastructure and multimedia service provider in the telecoms sector.

However, RHB said while this acquisition was likely to be value-accretive, it needed more information for further evaluation.

It reiterated a “buy” call on CMS and raised its fair value to RM12.20 from RM10.37 previously, as it rolled over its valuation to financial year 2015, raising the price-earnings ratio multiple for CMS construction material division to 12-times (from 10-times), and included discounted cash flow of OM Materials (Sarawak) for the first time.

Astro Malaysia Holdings Bhd

By Kenanga Research

Market Perform

Target Price: RM3.14

Kenanga Research said Astro’s fourth quarter 2014 net profit of RM111.4mil, taking its financial year 2014 (FY14) net profit to RM448mil were within expectations.

It said post-result announcement, it had fine-tuned its FY15 net profit forecasts by +1% for house-keeping purposes.

The research house said it had maintained its conservative stance in view of the ongoing subsidy rationalisation plan that could slow down consumer spending, and therefore potentially translate into slower subscription rate and higher churn as well as sluggish IPTV subscription (the group had only garnered 10,000 subscribers with 26,000 in total since the launch of Maxis-Astro IPTV services).

It expects Astro’s FY15 net profit to rebound by 35% driven by higher earnings before interest and tax margin assumption of 18.2% on the back of lower set-top box (STB) expenses given the lower STB swap-out.

The penetration of customers with B.yond STB is already at 84%, and Kenanga believes Astro is unlikely to push aggressively for conversion.

It maintained “market perform” call on Astro and marginally increased its target price to RM3.14 from RM3.10 based on a 10-year explicit discounted cash flow valuation with the following assumptions weighted average cost of capital of 8.9%, beta of 1.0, and terminal growth of 1%. The target price also implies a FY15 price earnings ratio of 26.6 times.

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