PETALING JAYA: Analysts are positive about Bumi Armada Bhd
’s third quarter of financial year 2024 (3Q24) results, while anticipating its potential merger with MISC Bhd’s offshore business unit.
The group raked in core net profit of RM256.2mil, down 0.4% quarter-on-quarter and up 41.7% year-on-year (y-o-y), bringing 9M24’s earnings to RM753.8mil, up 73% y-o-y.
According to Hong Leong Investment Bank (HLIB) Research, Bumi Armada’s 3Q24 results were above both its and street estimates of 81%.
The group’s management has guided that there will be impairment charges for Bumi Armada’s Kraken floating production, storage and offloading (FPSO) in 4Q24.
This is arising from mismatch between its net present value compared with net book value given its projected decline in cash flows in the financial year 2025 (FY25), given the anticipated steep decline by 70% in Kraken FPSO’s charter rates from FY25 onwards, said HLIB Research in a report yesterday.
On the merger with MISC’s offshore unit, the research house said the management did not divulge any details on the prospective share-based merger.
“As the deal will be an all-share transaction where Bumi Armada will purchase MISC’s offshore unit via share issuance, the merger will likely give rise to MISC holding a significant stake in Bumi Armada,” the research house noted.
HLIB Research has valued MISC’s Offshore unit at about RM12bil and Bumi Armada at around RM3.4bil.
“Thus, the combined entity will theoretically become an MISC’s 78%-owned subsidiary, subject to conclusions on the valuation of both parties,” it added.
According to HLIB Research, the merger bodes well for Bumi Armada as “the group can leverage on MISC’s strong balance sheet to have better access to financing for new FPSO projects, which Bumi Armada has been struggling to secure over the past few years.”
The research house has kept a “hold” call on the stock with a target price (TP) of 58 sen.
This is in view of an anticipated earnings decline in FY25 as the firm period of Kraken’s FPSO is due for expiry in early-2025.
RHB Research, in a report, said Bumi Armada continued to deliver sturdy results in 3Q24, and a final impairment on Kraken has been widely guided for.
“The stock is still trading at a fairly attractive 4.7 times FY25 price-to-earnings, assuming the charter for Armada Kraken is extended at a lower rate.”
It also said potential merger with MISC’s offshore businesses could improve Bumi Armada’s own financing access and tender win rate but, ultimately, the structure and pricing of the deal would be crucial determining factors.
RHB Research has kept a “buy” call and maintained the group’s earnings estimates with a stock TP of 73 sen.
UOB Kay Hian (UOBKH) Research, meanwhile, said: “In our MISC 3Q24 result report, we opined that two sides carving out the FPSO businesses into a new merged entity may be the cleanest merger scenario needed.”
Other reasons include business matching and financial capability, and the two sides carving out the FPSO businesses will allow a fairer market valuation on the FPSOs to unlock the value without the holding company discounts, according to the research house.
It has upgraded Bumi Armada’s 2024, 2025 and 2026 earnings forecasts by 13%, 37% and 21% after upgrading associate income assumptions, “as we were previously over-conservative.”
“We also factor in new earnings from the extended TGT1, although they are still small relative to the group.”
It has a “buy” call on the stock with a higher TP at 65 sen.
“Bumi Armada has been delivering consistent positive earnings surprises, while legacy impairments are coming to a tail-end.
“Moreover, its sentiment will be buoyed by merger rumours, and hence, the only hurdle left is growth such as new contract wins,” it noted.
