KUALA LUMPUR (June 22): Hong Leong Investment Bank (HLIB) Research has upgraded Bumi Armada Bhd (BAB) to “buy” at 48.5 sen, with an unchanged target price (TP) of 54 sen, after BAB announced that it has signed a non-binding memorandum of understanding (MOU) with Navigator Holdings Ltd to establish a 50:50 JV to venture into carbon capture initiatives.
In a note on Thursday (June 22), the research house said that if successful, the first shipment of CO2 is anticipated by the parties to take place three years after taking the FID — which also means that there will be no near-term earnings impact from this development.
“Also, the group announced that its Armada Kraken FPSO has recently start-up and is currently at 60% of pre-shutdown production levels.
“Previously, because of the shutdown, we have imputed a 6-months downtime for the FPSO — which we believe is prudent enough.
“To be conservative, we make no change to our forecasts but we now believe that there is upside earnings risk to our FY23f estimate.
“We upgrade BAB to 'Buy' — with an unchanged TP of 54 sen — pegged to a P/E multiple of 6x on FY23f earnings, which is at a 40% discount to its peer Yinson Holdings Bhd’s one-year forward multiple of 9.5x,” it said.