Affin Hwang maintains Buy on Bumi Armada, raises TP to 31 sen

KUALA LUMPUR: Affin Hwang Capital research maintained its buy call on BUMI ARMADA BHD with a slightly higher target price of 31 sen on the back of the announcement that it had secured the KG-DWN98/2 FPSO contract from India ONGC.

According to the research house, the news was expected as Bumi Armada was the sole bidder for the contract after its two rival bidders pulled out.

"We have yet to factor in any earnings contribution from this contract pending further clarity on the undisclosed capex value and the funding approach.
"By our estimate, this ONGC contract could lift our valuation by another RM0.05/share,
factoring only in the firm period," it said.

To recap, the contracts was secured in a joint venture consortium with India's Shapoorji Pallonji O&G, of which Bumi Armada has a 30% stake.

The firm contract value is US$2.1bil (RM8.8bil) over a nine-year period covering both bareboat charter and O&M portions, with annual extension option of up to seven years, valued at US$655mil. 

It was reported that the FPSO has been downsized to process about 50,000bpd oil (from an initial 77,000bpd) and storage capacity of 700,000 barrels (from an initial one million barrels), said RHB.

"Assuming an estimated capex of US$1.3bn on 70:30 project funding, we estimate BAB would
need to raise about US$120m (RM500m) for its share of equity. 

"However, we continue to believe that equity raising via a rights issue is unlikely, and believe that it will be funded via the partial divestment of its existing FPSO, which is likely
to be the FPSO Olombendo," it added.

On a separate matter, RHB slashed its FY19-20E forecasts by 13%-16% due to the higher interest financing cost from its recent debt restructuring.

It said FY19 finance cost will increase RM40mil while FY20 and beyond will see finance cost grow RM60mil.


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