KUALA LUMPUR: There could be upsides to Bumi Armada Bhd
's valuations as the offshore services provider's shares have taken a beating following news of the shutdown in the Armada Kraken floating production storage and offloading (FPSO) vessel on June 2, 2023.
Bumi Armada announced yesterday that production levels at the facility had returned to about 60% of pre-shutdown level, while work, testing and investigations were ongoing to stabilise and bring the vessel’s operational performance back to pre-shutdown level.
Following this update, Hong Leong Investment Bank (HLIB) Research opined that the shutdown may not be as severe as it had initially expected.
"Previously because of the shutdown, we imputed six-months downtime for the FPSO based on a daily charter rate of approximately US$480,000/day (or US$175mil/year)," it said in a company update.
However, it cautioned there remained a possibility that its current suboptimal production levels could result in the group not raking in full bareboat charter rates until the problem is resolved.
Bumi Armada's share price has plunged about 24% since it announced the shut-in at the Kraken, which HLIB said offers upside risks to its highly conservative earnings forecast.
"We upgrade Armada back to a 'buy' with an unchanged target price of 54 sen – pegged to a price-earnings multiple of 6x on FY23 forecast earnings, which is at a 40% discount to its peer Yinson’s one-year forward multiple of 9.5x," it said.
Meanwhile, RHB Research, which maintained its "buy" call on Bumi Armada following the announcement of the shutdown, said in its own update that its recommendation remains premised on the assumption that the problem will be resolved in the short term.
RHB said the Kraken accounted for more than 30% of its valuation, with any long-term disruption presenting a downside risk to its target price of 73 sen a share.
"According to upstream, the UK’s Health & Safety Executive (HSE) is examining the circumstances that led to the shutdown," it added.
In a separate development, Bumi Armada announced yesterday that it was planning a joint venture with Navigator Holdings Ltd to provide CO2 shipping and injection solutions in the UK.
The group said the partnership will be looking to design and implement a value chain of shuttle tankers delivering to a floating carbon storage and injection unit.
It is estimated that the potential market in the UK is over 30 million tonnes of CO2 per annum from emitters that are not proximate to the existing awarded carbon capture, usage and storage clusters.
Both parties are in initial discussions with a number of emitters, and if successful, the first shipment of CO2 is anticipated to take place three years after taking the final investment decision.
"We are long-term positive on Bumi Armada’s MoU with Navigator Holdings – this could potentially generate a new source of income for the former as it embarks on a global energy transition agenda," said RHB.
The research firm added that near-term earnings impact is expected to be minimal, pending further details from management.
