Potential earnings upgrade seen for Bumi Armada


  • Business
  • Wednesday, 22 Feb 2017

In a research report, UOB Kay Hian opined that the progress is in line with its expectation and that the FPSO Armada Kraken

PETALING JAYA: Analysts are expecting potential earnings upgrade for Bumi Armada Bhd, as a result of its floating, production, storage and offloading (FPSO) Armada Olembendo’s first oil success on Feb 8 and subsequently, FPSO Armada Kraken, which is on station and securely moored at the North Sea.

In a research report, UOB Kay Hian opined that the progress is in line with its expectation and that the FPSO Armada Kraken’s arrival in the Kraken field in North Sea removes investor concern of risk of further delay and the associated financial penalty charges.

“Although Bumi Armada’s fourth quarter of the financial year ended Dec 31, 2016 (Q4FY16) results (to be released end of this week) could be weak with potential impairments, the consistent positive newsflow in the progress for the new projects supports its long-term re-rating, which is now the focal point.

“We expect substantial improvement in cash flow and a doubling of the group’s profit base in 2017,” said UOB Kay Hian.

When contacted yesterday, Bumi Armada was unable to elaborate further on the group’s earnings visibility, as its financial results have not been reported.

The group also declined to comment on any merger and acquisition (M&A) or privatisation plans.

FPSO Armada Olembendo began production at Cabaca South East field ahead of schedule, while FPSO Armada Kraken is undergoing commissioning works on topside and subsea infrastructure while completing some reconstruction work.

Meanwhile, FPSO Armada Kraken is targeted to achieve first oil in the secodnd quarter of the year.

To recap, Bumi Armada signed FPSO bareboat charter and operation and maintenance (O&M) contracts with EnQuest back in December 2013, which was valued at US$2.2bil for eight years with 17 annual extension options.

FPSO Kraken can generate up to 80,000 barrels of oil per day with 600,000 barrels storage capacity.

However, AmInvestment Bank expects the group’s Q4FY16 and Q1FY17 both to be weak, as contributions from the two FPSOs would not have commenced yet.

“As reconstruction of FPSO Kraken’s turret area pipework and connection of the risers and umbilicals to the swivel stack is being undertaken, Enquest’s revised first oil delivery on Q2FY17 appears to be on track, following delays of over a year.

“Nevertheless, we highlight that there may yet be technical hurdles to mount as this is the first time that Bumi Armada is operating in harsh North Sea conditions,” said AmInvestment Bank in a recent research report.

Trading activity in Bumi Armada’s shares has been on the uptrend since the group announced updates on FPSO Armada Olembendo and FPSO Armada Kraken last Friday, closing 8.2% higher at RM0.725.

Yesterday, the stock closed 0.7% higher at RM0.755, traded on a volume of 48.52 million shares.

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