AmInvestment Bank keeps 'hold' call on Bumi Armada

PETALING JAYA: AmInvestment Bank is keeping its “hold” valuation on Bumi Armada Bhd, despite the group’s long-delayed floating production, storage and offloading (FPSO) vessel Armada Kraken, offloading its first cargo last Tuesday.

Its analyst Alex Goh said in a report yesterday, this is because the charter rates for the FPSO are uncertain pending the client Enquest Plc’s full acceptance of the vessel.

The research house has a fair value of 79 sen for the stock, based on a 20% discount to its sum-of-parts (SOP) valuation of 99 sen per share. The group’s share price closed up one sen to 74 sen yesterday, with some RM4.8 million shares changing hands. It has a market capitsalisation of RM4.34 billion.

Goh said Bumi Armada has indicated that an interim agreement has been reached between the group and Enquest for the payment of the charter rates based on the proportion of FPSO Kraken’s processing capability versus the field’s production rate.

Recall that the FPSO Kraken will be receiving reduced charter rates due to technical problems which have caused lower-than-expected production rates.

“While management indicated that the Kraken charter, even at the lower temporary rates, could still be profitable this year, we remain conservative given the group’s past earnings disappointments,” Goh said.

While the group’s earnings from 2Q’FY17 onwards could potentially improve from the full recognition of the FPSO vessel Armada Olombendo, which achieved first oil on Feb 8 this year, he said it remains cautious on the company’s near-term earnings trajectory given the uncertainties arising from Kraken’s lower charter payments.

He added that even though OSV utilisation rates are improving, management affirmed that charter rates are still weakening against the backdrop of the prevailing oil price which continues to slow down the progress of new potential projects.

The stock currently trades at a fair FY17F price-earnings of 14 times versus the sector’s 20 times due to lingering risks on 2HFY17 earnings recovery.

The Armada Kraken FPSO arrived at the location in the UK’s North Sea on Feb 13, 2017 and completed its hook-up on Feb 15, 2017. The FPSO then achieved first oil on June 28, 2017, four and a half months after its hook-up to the site.