KUALA LUMPUR (Nov 17): Most analysts have maintained their calls on Bumi Armada Bhd, after the Kraken floating production storage and offloading (FPSO) operation was restored, after a pre-shutdown, contributing a substantial portion of the group's revenue.
In a research note on Friday, RHB Investment Bank maintained its "buy" rating, with no changes in its earnings estimates and its target price (TP) remaining at 73 sen.
The research house continues to like Bumi Armada for the group's undemanding valuation and strengthening balance sheet, led by stable FPSO operations.
However, the research house pointed out that the root-cause assessment for Kraken is still ongoing, and an additional new transformer had yet to be installed.
"We are guided that the 51%-owned consortium will acquire new 3D seismic data on the Tulip discovery to evaluate the potential of a fast-track development under the Akia production sharing contract (Akia PSC). Such a development could bring an opportunity for Bumi Armada to provide and operate an FPSO and an FLNG (floating liquefied natural gas) or gas pipeline," it added.
The research house is also positive for the long term over both developing floating LNG facilities and carriers, as well as Bumi Armada's engineering of a carbon capture injection system for gas field projects in Indonesia.
"However, the earnings impact remains unclear, as the capacity and capital expenditure remain unknown, depending on the field development approach and complexity," it said.
Meanwhile, Hong Leong Investment Bank also maintained its "buy" call, with its sum-of-parts (SOP)-derived TP slightly increased to 71 sen from 69 sen, implying an undemanding price-earnings multiple of 4.8 times forecast for the financial year ending Dec 31, 2024 (FY2024).
"We continue to like Bumi Armada due to its undemanding valuation, in anticipation of bumper earnings in FY2024, due to the contribution from Armada Sterling V, and the current tight FPSO market, which gives Bumi Armada an upper hand in negotiating favourable charter rates for any new job wins that may arise," it added.
With Kraken running at full capacity since early August, the research house also revised upward its uptime and profit margin assumptions for Kraken, which in turn increased its forecasts for FY2023 by 13.3%, FY2024 by 6.2%, and FY2025 by 2.1%.
Meanwhile, Kenanga Research downgraded Bumi Armada to "market perform" from "outperform", and cut its SOP-based TP by 3% to 58 sen from 60 sen.
"In our view, the market has largely priced in the Kraken FPSO operational recovery, and at this juncture, the group has yet to be in advanced stages for any new FPSO project bids," it added.
The research house said that Bumi Armada’s cumulative nine-month FY2023 results missed its forecast, as Kraken FPSO returned to full operation later than expected, but the results met market expectations.
The research house also cut its FY2024 earnings forecast by 6% for Bumi Armada, after reflecting slightly fewer working days for FPSO Kraken, while keeping the FY2025 numbers unchanged.
"Our forecasts have not factored in any contribution from the Akia PSC, which is still in the preliminary stages at this juncture," it added.
At the time of writing on Friday, shares in Bumi Armada had fallen one sen or 1.83% to 53.5 sen, giving the group a market capitalisation of RM3.14 billion.