• This is not surprising given that the incoming Trump presidency is expected to relax regulatory restrictions in offshore drilling activities.

•             We maintain our HOLD recommendation on Bumi Armada with unchanged forecasts and fair value of RM0.64/share, based on a 50% discount to our revised sum-of-parts (SOP) valuation of RM1.29/share.

•             The group has set up wholly-owned Bumi Armada Americas Corporation as part of its business strategy to develop closer relationships with its key clients in Houston.

•             This is not surprising given that the incoming Trump presidency is expected to relax regulatory restrictions in offshore drilling activities.

•             Nevertheless, we do not expect any near term contracts to materialise given that the improvement in US rig utilisation rates is currently being primarily driven by onshore developments, particularly shale prospects.

•             North American upstream spending is expected to grow by 27% in 2017 as oil prices improve. However, global offshore spending is expected to decline by 25% this year, according to a Barclays’ survey of over 200 oil & gas companies.

•             At this juncture, there is no news of a requirement for a floating production, storage and offloading vessel (FPSO) off the Gulf of Mexico, which currently has only 2 FPSOs in operation largely due to cabotage restrictions.

•             Currently, among Bumi Armada’s 8 FPSOs and 1 floating storage unit, only the Vietnam-based Armada TGT 1 and India-based joint ventures are registering profits. Recall that the group lost bare-boat charter contributions from the 2 Nigeria-based FPSOs, Armada Perkasa and Perdana, in 1H2016.

•             Armada Olembendo has sailed away to Angola late last year while Armada Kraken is on the way to England. Hence, Armada Olembendo is likely to achieve first oil in 1QFY17 and Armada Kraken in 2QFY17. Any improvement in OSV utilisation, currently at below breakeven levels of 55%, will be gradual against the backdrop of prevailing oil price. Hence, we expect the group to continue to record losses for the next 2 quarters.

•             The group’s order book of RM37mil (with firm order book at RM24.1bil with optional extension values at RM12.9bil) translates to 16.8x FY17F revenues. However, with the ongoing conversion capex, the group’s net gearing has surged to 1.4x currently from 1.2x in 2QFY16. The current net debt/(annualised FY16 EBITDA) of 13x appears to be much higher than the 7.5x debt ceiling covenant with the group’s financiers.

The stock currently trades at a low FY17F PE of 14x vs. the sector’s 20x due to concerns over counter party risks for the group’s existing projects amid high net gearing levels of 1.4x. Recently, the share price was further depressed by margin calls on minority shareholders Ombak Damai