Bumi Armada's total order book as at end-March 2016 was RM36.4bil
KUALA LUMPUR: There is limited downside for Bumi Armada
at its current valuations, said Affin Hwang Capital Research.
“Street estimates remain overly optimistic, in our opinion, but we think the market has priced in this possibility, which explains Bumi Armada’s cheaper valuation versus local peer Yinson Holdings,” it said in a note on Wednesday.
The company’s three ongoing FPSOs (Kraken, Olombendo, and Rainbow I) and FSU Malta projects are on track for completion by end-2016, which is expected to yield significant cash flow for the group from next year onwards.
It has also tendered for several other FPSO projects in Namibia, Nigeria and Vietnam, with results expected in the first half of 2016.
However, management hinted that the OSV and T&I segments will likely be in the red in the financial year ending Dec 31, 2015.
Affin conservatively assumes the OSV segment will stay loss-making through 2017, although the segment is likely to stay cash flow positive in 2016 even if there are no new contracts.
This is given the current orderbook, which looks sufficient to tide the fleet at >42% utilisation in 2016, which would be higher than Bumi Armada’s cash breakeven utilisation of 35%.
Affin revised its EPS by -8% for 2015, +2% for 2016 and -30% for 2017, imputing higher interest expense to account for capitalised interest, no FPSO contract wins in 2015-2017, higher effective tax rates due to a drag from loss-making units, and more conservative assumptions for the OSV and T&I segments.
“Post-revisions, we expect core net profit to fall by 25% year-on-year in 2017 on higher interest expense,” it said.
However, it raised its target price for Bumi Armada to RM1.02 per share, on higher enterprise value for the FPSO & FGS segment following the revision of its forex assumption to RM4.20/USD.
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