Analysts positive on new Bumi Armada job, waiting for Q2 results to decide on outlook

PETALING JAYA: Bumi Armada Bhd's RM576million contract with LUKOIL-Nizhnevolzhskneft LLC (Lukoil) for additional scope of work will see an increase in vessel utilisation, which in turn, will ensure the offshore oilfield services provider's costs managed effectively, according to PublicInvest Research.

The research house which has an outperform rating for Bumi Armada's shares at a target price of 90 sen, said the contract bagged by its subsidiary Bumi Armada Caspian LLC (BAC) which entails post-trenching and back-filing works as well as laying subsea pipelines in the Russian sector of the Caspian Sea. will reaffirm the group's execution capabilities.

Besides that, the group is expected to see a boost in earnings this year as a result of contributions from four floating production storage and offloading (FPSO) and floating gas solutions (FGS) contracts.

"Share price has taken a recent beating again, in line with the overall weaker regional markets amid a rise in geopolitical tensions and a spike in oil price volatility. Fundamentals of the company are intact nonetheless, as we see this as an opportunity to accumulate Bumi Armada at this juncture," PublicInvest said.

AmBank Research, on the other hand, maintained a "hold" call on Bumi Armada's shares at 79 sen pending the group's second quarter(Q2) results to be released on August 25.

AmBank said the award could boost the group's earnings for FY17-18 by 5-7%.

However, it said although the earnings for Q2 could potentially improve as a result of full recognition of FPSO vessel Armada Olombendo, it is cautious over the near-term earnings trajectory, given the uncertain penalties which could arise from the delays in the commencement of the FPSO Kraken's contract.

"Recall that some of Kraken's undisclosed late delivery provisions were only up to the backstop date of 1 April 2017 which was later extended to 1 July this year. The backstop date gives the client the right to terminate the charter. With penalties potentially accruing at US$6mil a month, negotiations are still unresolved with the client Enquest," it added.

The Armada Kraken operating in the North Sea was unable to achieve its first oil before the deadline on April 1, which resulted in a penalties being imposed by its clients.

Bumi Armada's shares were up by two to close at 70 sen on Monday, with some 3.8 million shares traded, giving it a market capitalisation of RM4.11 billion.