KUALA LUMPUR: The ongoing restoration of Bumi Armada Bhd
's Armada Kraken floating production storage and offloading (FPSO) vessel could put the facility's operations back on track within the next one or two months, says Kenanga Research.
In a note, the research firm said it is positive over the progressive restoration of the Kraken FPSO's production, which cushions concerns of a major financial impact to Bumi Armada.
This comes following the offshore service provider's announcement yesterday that it had reconditioned and reinstalled a hydraulic submersible pump (HSP) transformer on the vessel, which brought its operating level back to 90% of pre-shutdown levels.
"We applaud Bumi Armada for reinstating operations close to full capacity in less than two months since the first shut-in announcement," said Kenanga in its company update.
On June 2, 2023, Bumi Armada announced that the Kraken FPSO had experienced a production shut-in following the failure of its HSP transformer unit, guiding that that there would be material impact resulting from the Kraken's shut-in.
By June 21, the Kraken achieved start-up and was able to operate at about 60% of its pre-shutdown levels.
Kenanga said it factored in a partial loss of bareboat charter income from the Kraken for June to August 2023, which is reflected by a "benign" 9% impact in its current forecasts
Following the latest update, Kenanga said it maintained its "outperform" recommendation and sum-of-parts target price of 62 sen a share.
"We like Armada for sustained traction in its efforts to deleverage its balance sheet (current net gearing: 0.8x), long-term earnings visibility from substantial orderbook in excess of RM20bil (including extension options), and it being the leading contender for a US$1bil EPCC contract for FPSO Cameia," it said.
However, it cautioned that investor sentiment may still be dragged lower by the possibility that the financial impact of the Kraken shut-in may be larger than expected.
It said there could also be substantial vessel repair and maintenance costs that are not fully covered by insurance, while client Enquest may request for reimbursement or impose penalties on Bumi Armada.
