Oil production from Angola to commence ahead of estimates
By UOB KayHian
Target price: 92 sen
BUMI Armada Bhd can expect incoming cashflow from its floating production, storage and offloading (FPSO) unit Olombendo, by this week as oil production from project offshore Angola will commence ahead of initial estimates.
UOB Kay Hian in a report yesterday said Italy’s oil and gas (O&G) company Eni SPA has started production of the East Hub Development Project in Block 15/06 of the Angolan deep offshore region, five months ahead of schedule.
“Given this newsflow, we now expect incoming cashflow from Olombendo to begin from Feb 17. Nevertheless we maintain our 2017 and 2018 earnings forecasts of RM305mil and RM466mil respectively, which already assume new contribution from all four projects.”
FPSO Olombendo, which can generate up to 80,000 barrels of oil per day and compress up to 3.4 million cu m of gas per day, is operating on a firm 12-year contract (with eight optional extensions).
It is also Bumi Armada’s largest contract with capital expenditure of over US$1bil (RM4.45bil), said the research house.
“We view this positively as the first oil target is within Bumi Armada’s guidance for the first quarter of 2017.
UOB Kay Hian added that it was the second of the company’s four new projects that have started charter ahead of 2017.
It also said payments should be rewarded according to original contract terms, as Eni is a strong counter-party (one of the world’s supermajors) with good financial standing, adding that the East Hub is one of Bumi Armada’s most important new projects.
“We understand from management that the final acceptance process are in several stages. Hence the only outstanding matter with regard to the FPSO contract, is the first gas of the East Hub field as gas processing is scheduled to start later than the first oil.
“The estimated timeline for first gas is April 17. Nevertheless, as the FPSO is already producing oil, we view any forms of delay/contract renegotiation concerns is now being reduced substantially.”
UOB Kay Hian expected substantial improvements in cashflow and doubling of the group’s profit base in 2017, from both new project start-up and stabilisation of offshore marine services utilisation in view of better oil prices.
“With two out of four projects having started charters, there is also potential for earnings upgrades relative to consensus forecasts which may have conservatively assumed further start-up delays.
“The remaining projects are Karapan Armada Sterling III which is now undergoing installation in Madura Field and FPSO Kraken which is undergoing final inspection in KeppeVerolme in Rotterdam.”
Bumi Armada Bhd posted a net loss of RM96.71mil for the third quarter ended Sept 30, 2016 from a net profit of almost RM70mil in the same quarter a year ago, as contributions FPSO and floating gas solutions narrowed.
Revenue for the period fell 32.5% to RM377.51mil from RM559.46mil a year earlier, while loss per share was 1.65 sen compared with earnings per share of 1.19 sen.
PARAMOUNT CORP BHD
By RHB Research
Target price: RM2.24
THE property developer and education group is targeting to achieve RM500mil worth of new sales this year after hitting RM420mil in 2016 that beat the research house’s forecast.
The company plans to roll out another strategic project in Section 13 in Petaling Jaya this year.
Last year’s new sales of RM420mil surpassed RHB Research’s expectation of RM350mil.
Property sales in the last quarter of 2016 came in strongly at RM209mil against only RM81mil in the preceding quarter.
The bulk of sales in fourth quarter was contributed by Batu Kawan Utropolis at RM90mil that was launched in October 2016 as well as Sejati Residences (RM49mil) and Glenmarie Utropolis (RM40mil).
The strong numbers suggest that the company’s marketing effort and initiatives to repackage some property products has been successful.
We believe some of these sales are likely to flow through to the first quarter of this year.
For 2017, management is targeting to achieve RM500mil worth of sales, driven by another major launch at Section 13 with gross development value of RM608mil, as well as Sekitar26 Enterprise, which is a retail centre.
Meanwhile, we expect contribution from REAL Education Group Sdn Bhd to start kicking in from late second quarter of this year.
In January, Paramount announced the acquisition of a 66% controlling stake in REAL Education for RM183mil.
In general, RHB Research expected stronger earnings growth in financial year 2018 and 2019 as contributions from the education division post acquisition of REAL Education Group (expected to be completed in late 2Q17) becomes more material due to expansion.
Also, construction of the Batu Kawan project would be at more advanced stages.
As a result of strong sales in the fourth quarter of 2016, unbilled sales have picked up to RM407mil from RM327mil as of the third quarter.
We expect some education properties to be disposed of in the coming months, in line with management’s asset light strategy.
This could be the next share price catalyst.
By Kenanga Research
Target price: RM2.11
OLDTOWN has executed a licence agreement to provide a licensee the rights to operate café outlets and sell OldTown products in Yangon, Myanmar.
While we are positive about the development, it makes minimal changes to our earnings forecast given the limited contribution from the regional expansion in the short-term.
Last Friday, OldTown announced that it had executed a license agreement with Nikmat Mujur Sdn Bhd to operate café outlets in Yangon.
It provides OldTown with the means to establish a stronger foothold in a new market.
We believe that this will enable the group to test the brand acceptance of its products in a more cost-effective manner before considering establishing fully-owned outlets or pursuing aggressive retail distribution.
Given the stable economic growth and outlook of Myanmar’s economy as well as the sizeable population in Yangon, we would not be surprised if the group seeks to further expand its outlet size on top of the initial three outlets in the short-term.
However, given the nine-month construction period for the licensee to establish the pilot outlet as well as the low base of foreseeable initial café outlets intended to be operated, we believe earnings contribution from the initiative will only yield minimal improvement in the near-term.
Hence, we tweaked our financial year 2018 earnings with an immaterial 0.3% upgrade to account for the additional licence fees revenue and expected product sales to these new licensed outlets.
By Hong Leong Investment Bank
Target price: RM3.75
SUNWAY Bhd entered into a joint venture (JV) agreement to acquire Austral Meridian Property Sdn Bhd which will enable Sunway to gain additional 8.45 acres of leasehold land along Jalan Peel, Kuala Lumpur.
Sunway will hold 50+1% stake in JV with the remaining from LPK (40%) and CRSC (10%). The estimated gross development value (GDV) is RM2bil to be developed over 10 years (comprising serviced apartments, office tower and retail shops) with target launch by first half of next year.
Sunway has the option to increase the stake from 50% plus 1% to 70% plus 1% within eight years.
We are positive on the land acquisition given its strategic location opposite the RM4bil Sunway Velocity development.
We expect the proposed development to have synergies with existing Sunway Velocity which comprises of Sunway Velocity Shopping mall, medical centre and hotel.
The proposed land acquisition will increase the group’s effective total GDV by 5% to RM32.5bil, which will sustain development period over 15 years.
The net present value for project is estimated at RM83mil or four sen per share.
Risks included prolonged downturn in Johor’s property market, slowdown in property demand due to tightening of loan approvals.