PETALING JAYA: Bumi Armada Bhd’s valuations at six times the financial year 2021 (FY21) price-to-earnings ratio compared to the FBM KLCI’s 17 times currently may be “unjustified”, given the significant improvement in its core earnings since stabilising Armada Kraken’s operations.
As such, AmInvestment Bank Research has maintained its “buy” call on the counter with an unchanged fair value of 59 sen based on a discount of 20% to the group’s sum-of-parts valuation of 73 sen per share.
In its report, the research house said Bumi Armada’s 49%-owned joint venture with Shapoorji Pallonji Oil and Gas Private Ltd had recently secured a licence agreement with the board of trustees for the Port of Mumbai to set up, operate and maintain a floating storage and regasification unit (FSRU) in the Mumbai harbour for 30 years.
“Assuming that the FSRU costs US$300mil with a project internal rate of return of 10%, 70:30 debt-to-equity ratio and weighted average cost of capital of 6%, we estimate that this JV could add 5% to FY23’s forecast net profit, ” the research house said.
“However, as the heavily-geared group may also need to raise its own portion of funding of up to RM200mil to support this project, we maintain our forecasts and valuations for now pending further details of the project, ” it added.