RHB Research said it did not expect “expect a lumpy vessel impairment” as it is still on the assumption that the issue will be resolved in the short term.
PETALING JAYA: Spooked by the unexpected shutdown of Bumi Armada Bhd
’s Armada Kraken floating production storage and offloading (FPSO) vessel in the UK North Sea, investors have sold down shares of the company.
At market close yesterday, the stock lost 23.62% of its value or 15 sen lower at 48.5 sen.
Analysts expect continued negative impact on the share price in the near term, until the issue is resolved.
Last Friday, Bumi Armada announced that it was likely to take a hit to revenue after the Armada Kraken FPSO stopped production due to a technical issue.
However, RHB Research, in a note to clients, said it did not expect “expect a lumpy vessel impairment” as it is still on the assumption that the issue will be resolved in the short term.
The research house liked Bumi Armada for its attractive valuation and strengthening balance sheet, led by stable FPSO operations and consistent debt repayment.
It said Bumi Armada had provided RM1.6bil impairment charge on Armada Kraken in 2018, when the vessel had a technical failure which affected its uptime availability.
It noted that Armada Kraken has been delivering a steady performance in the past few years after it faced technical challenges in 2018.
“According to EnQuest, the vessel delivered top quartile performance with production efficiency and water injection efficiency both at circa 94% as at end-April.
“It is currently unclear what the earnings impact will be from the disruption as it largely depends on how soon the vessel can resume production,” said RHB Research.
The research house estimated that Armada Kraken would contribute 30% to 35% of FY23 earnings.
“As such, we cut our FY23 earnings by 14% assuming a three-month disruption coupled with additional maintenance costs arising from this event,” it added.
Meanwhile, CGS-CIMB Research has also cut its FY23 core net profit forecast for Bumi Armada by 47% as it factored in “loss of charter-hire revenue and repair and maintenance costs for the Kraken.”
In the meantime, the planned third quarter 2023 maintenance has been brought forward to negate the need for future outages this year, CGS-CIMB Research added.
Bumi Armada and EnQuest are working on alternative solutions with the aim of “returning to production on a phased basis” in the coming weeks.
