PETALING JAYA: Despite an impairment that dragged offshore oilfield services provider Bumi Armada Bhd into the red for the recently-concluded quarter, the company should be one of the few which are somewhat impervious to the current oil down-cycle.
This is given the long-term contracting nature of its floating production storage and offloading or FPSO business, Kenanga Research said in a report.
The research house noted that despite impairment dragging numbers into the red, the company’s core net profit was actually “satisfactory”, increasing 22% year-on-year.
“While the impairment charge was unfortunate, we do note that the charge was made on its offshore marine services (OMS) segment - a business where the company is strategically trying to gradually exit as its short-term contracting nature gives a degree of unpredictability to the company’s earnings and cash flows, ” Kenanga said.
Conversely, things are seemingly improving for its main segment of floating production and operations.
“Armada Kraken FPSO has continued to improve on its uptime availability, after suffering numerous operational complications upon its commencement.
“In fact, Kraken-related term loans of around RM1.3bil have successfully been reclassified as long-term debt, from short-term debt previously, signalling client’s confidence as well as stability in the project.”
However, the research house is not entirely comfortable with the company’s high net-gearing of 2.9 times.
Hence, it suggests a “trading” approach towards the stock, rather than a long-term “buy-and-hold” strategy.
CGS-CIMB in its report to clients said it was lowering its target price for Bumi Armada’s stock from 61 sen to 52 sen, as it reduced its discounted cash flow value of the Kraken charter “by excluding the option period entirely, because there are questions over the financial health of the charterer EnQuest.”
“For the moment, however, EnQuest appears to be stable. We have also attached a zero value to OMS assets, ” it said.
At yesterday’s close, the Bumi Armada stock finished at 23 sen, up two sen, giving the company a market capitalisation of RM1.35bil.
The stock has traded between 11 sen and 55.5 sen in the past 52 weeks.
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