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Affin IB Research downgrades Bumi Armada to Add, cuts target price

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Affin IB Research downgrades Bumi Armada to Add, cuts target price Empty Affin IB Research downgrades Bumi Armada to Add, cuts target price

Post by Cals Tue 01 Apr 2014, 01:21

Affin IB Research downgrades Bumi Armada to Add, cuts target price
Business & Markets 2014
Written by theedgemalaysia.com   
Monday, 31 March 2014 08:25

KUALA LUMPUR (March 31): Affin IB Research has downgraded Bumi Armada Bhd (BAB) to an Add (from buy) at RM3.91 with a lower target price of RM4.17 (from RM4.50) after BAB adopted a new accounting treatment for its large projects.

In a note Monday, the research house said BAB now evaluates its new FPSO contracts on a case-by-case basis where longer tenured, large-scale FPSO projects will be treated as a financing lease.

Affin IB Research said it has lowered its 2014-16E EPS by 29-33% to account for the changes in accounting treatment.

However, it said that the changes are accounting in nature with no impact to the underlying cash flow and project IRR.

“We are switching our valuation methodology from PER multiple to sum-of-the-parts (“SOTP”) and value Bumi Armada at RM4.17 (from RM4.50).

“Downgrade to Add (from Buy) in view of the lower upside potential.

“Notwithstanding our earnings, target price and rating cut, we continue to like Bumi Armada for its: (i) strong earnings growth; (ii) a proxy to the buoyant global FPSO market; and (iii) good exposure to the lucrative Caspian Sea O&G market,” it said.
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