Bumi Armada’s recovery on track

CGS-CIMB Research forecasts an average 3Q23 and 4Q23 core net profit of RM182mil each.

PETALING JAYA: CGS-CIMB Research has upgraded Bumi Armada Bhd to a higher target price of 75 sen from 65 sen as it expects the company to recover from the unexpected shutdown of its Kraken floating production storage and offloading (FPSO) vessel in the United Kingdom North Sea.

The first transformer failed in March 2023; the second failed in early-May 2023 and the third failed on May 29, 2023, all in a short span of time.

This sent shockwaves through the investment community, causing Bumi Armada’s share price to plummet.

The research house said despite the failure of its three transformers, the FPSO Kraken had restored its production to 60% in June, 90% in July and 100% in August this year.

CGS-CIMB Research said while the RM90mil loss of revenue in the second quarter of this year (2Q23) cannot be recovered, there is the potential to recover the RM40mil in transformer repair costs if a root cause analysis study concludes that the fault lies with the Swiss-based manufacturer, Trasfor SA.

Bumi Armada has also bought four new transformers to replace the four existing ones with two delivered already and the remaining two to arrive in December this year.

Additionally, the offshore oilfield service provider has targeted its 30%-owned Sterling V FPSO to achieve its first oil in late October this year, with the bareboat charter to commence thereafter.

“Even if potentially delayed by weather or other operational reasons beyond Bumi Armada’s control, we expect this associate to contribute some 15% of our FY24 core net profit forecast,” it said.

The research house added that it forecasts an average 3Q23 and 4Q23 core net profit of RM182mil each.

Moreover, there are discussions surrounding Sterling V receiving standby rates from Indian charterer ONGC because the FPSO arrived offshore India late last year, but could not proceed with the charter due to various issues unrelated to Bumi Armada directly.

The research house noted that if standby rates are successfully secured for an assumed nine-month period at just US$30,000 per day, its FY24 core earnings per share may be enhanced by 1.4%.

“The FPSO Armada TGT-1’s charter may also be extended beyond its existing November 2024 expiry as the charterer Pharos Energy is requesting PetroVietnam to extend its concession to 2031, which could contribute a further 15 sen per share to our sum-of-parts as well as lift our FY25 core net profit forecast by 11%,” CGS-CIMB Research said.

Another key factor that could further accelerate Bumi Armada’s share price is the potential announcement by EnQuest of a Bressay oilfield tie-in to the FPSO Kraken.

The Bressay heavy oil field is said to be one of the largest undeveloped oil fields in the United Kingdom Continental Shelf.

“The Bressay field may be developed via tie-in to the FPSO Kraken and gas from Bressay can also power the equipment on the FPSO, reducing the FPSO’s greenhouse gas emissions,” the research house said.

However, CGS-CIMB Research warned it expects Bumi Armada to execute an equity rights issue between one and two years’ time to fund its new ventures in the United Kingdom Continental Shelf and Indonesian gas.

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