Maybank Research expects Bumi Armada to face knee-jerk reaction

Bumi Armada crucially needs a change of luck, says Maybank Research.

KUALA LUMPUR: Maybank Investment Bank Research expects Bumi Armada to sustain a knee-jerk reaction from the suspension of its floating, production, storage, and offloading vessel (FPSO) Armada Perdana’s services.

It said on Thursday this leads to a 10%-13% / 6% cut in its FY17-19 earnings forecasts / sum-of-parts based target price to 68 sen respectively.  

“Bumi Armada, in our view, needs a successful execution of its four projects in-hand and deliver its earnings to revive its weakened franchise value,” it said.

The research house said Bumi Armada issued a notice of suspension to its client, Erin Energy Corporation, for FPSO Armada Perdana, effective on Wednesday. 

The suspension of the operations was due to longstanding delays and irregular payments in the charter party payments.     

“The suspension of FPSO Armada Perdana’s operations is sentiment negative but not entirely unexpected,” it said. 

Maybank Research said Bumi Armada has faced difficulties in securing regular payments for this charter since FY16, a reflection of poor counter-party and communication risks. 

“We understand that the decision to suspend the operations is to ensure that Erin Energy  improves on its payment situation. The bareboat charter/O&M payments are overdue by more than six/two months. 

“The book value on this debt-free asset has been written down to near zero post its impairment exercise in FY16. For this, we now cut FY17-19 earnings forecasts / TP by 10%-13%/ 6%, removing the contribution from this FPSO from Wednesday,” it said.   
 
Maybank Research pointed out the underperformance of Bumi Armada’s offshore service vessels division, contract termination of FPSO Armada Claire and sale of Armada Perkasa are some of the setbacks that plagued Bumi Armada over the last 12 months.
 
“Following this development, Bumi Armada crucially needs a change of luck. Successful execution of its 4 projects in hand -- FPSOs Kraken, Olombendo & Madura and FSU Malta - is crucial to revive Bumi Armada’s flailing sentiment and reputation,” it said.