UOBKH Research said speculation of a merger with MISC might have lifted Bumi Armada’s share price in the past month.
PETALING JAYA: UOB Kay Hian (UOBKH) Research is advising investors to take profit on Bumi Armada Bhd
given its recent share price rally, which was related to speculations of a merger between the company and MISC Bhd.
The research house has recommended a “sell” call for Bumi Armada with an unchanged target price of 50 sen as its fundamentals are unchanged with no near-term prospects of a contract win.
“Speculations of a merger might have lifted Bumi Armada’s share price in the past month. While combining both floating production, storage and offloading (FPSO) fleets may propel the merged entity to Modec’s fleet size, alongside complementary geographical FPSO market presence, the stumbling blocks are too great in our opinion.
“There is a lack of financial synergies from the non-FPSO segments,” it added.
UOBKH Research said theoretically, combining the 13 and eight offshore assets of MISC and Bumi Armada respectively can create an FPSO behemoth with a fleet size equivalent to Modec, the largest FPSO player globally.
Also, MISC is well-established in Malaysia, Thailand, Vietnam and South America.
MISC is not strong in Indonesia, and it had attempted to break into the African FPSO market (via FPSO Cameia), in order to truly solidify its branding as a leading FPSO provider.
Bumi Armada, on the other hand, has strong presence in India and Indonesia, Africa and the North Sea, while it lacks market presence in Malaysia and the Americas
The research house believed that potential resistance may make the whole exercise futile
“While there are complementary areas and synergies, we believe the stumbling blocks for such a merger are too great.
“It may make better sense and positive market reaction should both companies form JVs for certain segments, such as new energy and decarbonisation, or collaborate to bid for new FPSOs,” it added.
The research house also pointed out that a June 24 Upstream article revealed that one outstanding issue (that impedes the start of the full dayrate) is the introduction of gas into the FPSO.
“Another outstanding issue was that last year, the FPSO was ready on site but Oil and Natural Gas Corp was still dealing with damaged subsea infrastructure.
“Normally, FPSO owners will be entitled to a standby rate, but sources indicating outstanding payment issues for that remained,” it added.
