Research houses are split on Bumi Armada Bhd as its floating vessel, FSPO Kraken, returned to full operation later than expected.
However, the vessel is now running at full steam.
Kenanga Research said Bumi Armada missed its forecast as FSPO Kraken returned to full operation later than it had expected but met market expectation.
The research house downgrades its call to MARKET PERFORM from OUTPERFORM in the absence of any new earnings catalyst.
“We cut our FY24 net profit by 6% after reflecting slightly fewer working days for FPSO Kraken but we keep our FY25 numbers.
“Our forecasts have not factored in any contribution from Akia PSC, which is still in preliminary stages at this juncture,” it said in its Results Note today (Nov 17).
Kenanga trims its TP by 3% to 58 sen from 60 sen and it reckons that the market has largely priced in the FPSO Kraken operational recovery and at this juncture, the group has yet to be in advanced stages for any new FPSO project bids.
It added: “We like Bumi Armada for its better net gearing position (0.7x in FY22 compared to 1.5x in FY21, long-term earnings
visibility from sizeable orderbook in excess of RM20 billion, including potential extensions, and potential for long-term growth.
“However, post Kraken recovery, the group’s earnings will be flattish in the absence of any new project.”
The risks to Kenanga’s call include, further delay in Sterling 5 JV first oil, beyond FY24, cost overruns and delays for EPCC projects and FPSO contract extensions are not exercised for core FPSO assets.
Post-briefing, Kenanga noted that the group will start a seismic studies in 1QFY24, which will take 3-6 months to be completed, for Akia PSC. This could progress further into exploration drilling stage.
Kenanga said that the group’s new transformer was installed on FPSO Kraken last September and it also received an additional new transformer.
“By and large, FPSO Kraken will be operating in full capacity in 4QFY23 and risk of further breakdown is low.
“(Besides that), Armada Sterling V (30%-owned) remains moored on East Coast of India preparing for first oil and final acceptance by client. Armada has guided that first oil could be in 1HFY24,” it said.
However, RHB Investment Bank (RHB IB) has a more positive view of Bumi Armada, saying that there were no surprises in Bumi Armada’s 9M23 results, as its Kraken operation was restored to pre-shutdown levels in early August.
It keeps BUY rating, and SOP-based TP of 73 sen, 33% upside, with 6% ESG discount imputed based of 2.7 score and no changes in earnings estimates.
Its TP also implies FY24F P/E and P/BV of 5.4x (below its 5-year mean of 6x) and 0.6x (below +1SD from its 5-year mean).
“We continue to like BAB for its undemanding valuation and strengthening balance sheet, led by stable FPSO operations,” it said.
RHB IB said Bumi Armada 9M23 core earnings of MYR448 million came in within expectations, and at 75% of the research house’s and street’s full-year estimates, down 27% year-on-year.
No dividends were declared for the quarter, as expected, it said.
“Its 3Q23 core profit surged by 2.6 times quarter-on-quarter to RM191 million as the operational performance of its Kraken asset had been restored to pre-shutdown levels in early August.
“Its core profit performance was also further led by stronger JV & associate contributions. 9M23 core earnings contracted by 27% YoY
to RM448 million, as a result of an exceptionally weak 2Q23 performance – no thanks to the shutdown of Kraken,” it said.
Downside risks to RHB IB’s call include contract cancellations, failure to win new contracts, and a deterioration in the Kraken operation.
