AmWatch - Bumi Armada : Positive on RM1.5bil Sukuk debt raising, 27 Mar 2014

STOCK FOCUS OF THE DAY

Bumi Armada : Positive on RM1.5bil Sukuk debt raising                Buy

We maintain our BUY call on Bumi Armada with an unchanged SOP-based fair value of RM5.15/share. The Securities Commission (SC) has approved Bumi Armada’s proposal to raise up to RM1.5bil unrated Sukuk programme for capital expenditure, working capital and debt refinancing purposes.

The group’s net gearing of 0.7x as at 31 Dec 2013 includes gross debt of RM3.8bil (43% of its total debt), which currently wholly comprises conventional loans. For a company to be qualified under SC’s revised Syariah compliance listing, the proportion of conventional loan cannot exceed 33% of a company’s total assets.

If this Sukuk programme were to be used entirely for debt refinancing, Bumi Armada’s proportion of debt to total assets will drop to 25%, below the Syariah threshold of 33%. But the group is also building a RM1bil (RM3.3bil) FPSO vessel for Enquest’s Kraken project.

Additionally, Bumi Armada is likely to secure another large FPSO, potentially costing US$1.5bil, for Eni’s East Hub project in Block 15/06 off Angola. Including these new projects, Bumi Armada’s gross debt:total debt ratio could surge further to 62% by FY16.

Given the huge financing requirements over the next 2-3 years, we do not expect Bumi Armada to be able to maintain its syariah-listing status in the long term. As this could mean a more orderly withdrawal of syariah-compliant shareholders, we are positive on this Sukuk debt programme.

Besides the Kraken and Angolan FPSOs, the group is still seeking at least 9 other projects, including a US$2bil floating liquefied natural gas project at Equitorial Guinea in Central Africa. These increasingly visible project pipelines underpin a potential upward re-rating momentum for consensus earnings for FY15F onwards.

Others :

Kimlun Corporation : Wins SGD20.5mil Thomson package              Buy

Malt Liquor Market : Bubbly? Or flat year?           Neutral

NEWS HIGHLIGHTS

Telekom Malaysia : To buy P1?

Gamuda : Sends feelers, willing to sell assets for ‘right price’

Felda Global Ventures Holdings : Sees drought hitting oil palm output

Petroliam Nasional : Targets to grow hydrocarbons output by 3%, profit by 10% a year

Property Sector : Penang’s secondary property mart to decline

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.