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Friday, December 19, 2014

Alliance Research maintains Buy on Bumi Armada

KUALA LUMPUR: Alliance Research has maintained its Buy call on Bumi Armada with a target price of RM1.70 as the stock is oversold, it said.

In a note on Friday, the research house said earnings outlook is underpinned by the RM35bil outstanding orderbook with nine firm FPSO contracts.

"We trimmed earnings due to the bearish outlook for crude oil price and mounting concerns over declining offshore capital expenditure. Even after including RM15mil p.a. JV contribution from the Madura project starting FY15, earnings were still reduced by 12% for FY15F and 8% for FY16F," it noted.

It added that Bumi Armada will replace seven vessels with four new multi-purpose vessels (MPSV) and three ice class vessels. 

The latter have secured long term charters, but the MPSV may see slow demand. 

"In the T&I division, we see further risks for Armada Hawk, Condor and KP1 vessels and now assume 50% utilisation instead of 70%. We also reflected higher interest costs arising from additional borrowings for the Madura conversion," it said.

Alliance said that it expects new FPSO tendering activity to be unexciting as long as crude oil price remains suppressed. 

"Pemex has pushed back two projects, and possibly more. Bumi Armada still has three firm bids in Africa but that could drag on into FY16. That said, the group has three major conversions on their plate to keep them busy in the interim. 

"FY15-16 earnings growth will be driven by conversion progress for the Kraken, Angola 15/06, and to a smaller extent, Madura FPSO," it noted.

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