Positive earnings visibility for Bumi Armada

PETALING JAYA: The first quarter of financial year 2024 (1Q24) earnings of Bumi Armada Bhd came in within market expectation but it may need new assets to drive growth.

Kenanga Research said on April 25, the group’s floating production, storage and offloading (FPSO) vessel Kraken will transition to an extension contract as its firm charter with Enquest concludes, resulting in a lower recurring earnings base from this asset.

Meanwhile, FPSO Sterling 5 is still awaiting the final acceptance from the client, so the asset remains on a standby rate, which is lower than the full contract rate.

According to the research firm, its RM1.5bil sukuk maturing in September 2024 will likely be refinanced with an US$400mil facility of which the rate is yet to be determined.

The research firm said while Bumi Armada is in a better net gearing position and has long-term earnings visibility from its sizeable order book, post Kraken recovery, the group’s earnings will be flattish in the absence of any new project.

Bumi Armada’s 1Q24 core net profit of RM196.8mil (excluding unrealised foreign exchange loss and gain from the revision of charter FPSO Olembendo attributable to FY23) met Kennaga Research’s expectations at 25% of both its full-year forecast and the full-year consensus estimate.

About US$26mil debt repayments were done in 1Q24, bringing the group’s outstanding debt to RM4.2bil.

With lower gearing, UOB Kay Hian (UOBKH) Research said that the group’s management guided it could take on two new FPSO projects – at least one new large wholly-owned FPSO and one or two FPSOs on the joint-venture level with India’s Shapoorji Pallonji Energy without the need to incur additional equity fund raising.

“The higher FPSO opportunity allows for certain contracts that are favourable to Bumi Armada, like those with construction and maintenance scope only (no lease) that do not warrant heavy capital expenditure commitment,” said UOBKH Research.

It added that other than FPSOs, Bumi Armada is also preparing for more floating gas type of projects, or even projects related to carbon capture.

However, it notes that competition has become stiffer.

“We observed that Bumi Armada’s long-time partner Sharpooji Energy has unveiled its own revolutionary FPSO design, the Sterling Streamline, which has the specifications of a deepwater FPSO and a plug-and-play approach.

This also shows that Sharpooji can bid for contracts on its own.”

The research firm added future contract prospects were still unclear, one of which are the Caspian subsea vessels.

“Management still chose to not reveal the prospects of new FPSO or floating gas projects the group is seriously chasing. This also includes the two subsea vessels dedicated for the Caspian Sea.

“In today’s world whereby there is a shortage of every rig, offshore support vessel and pipelay vessels out there for oil and gas and offshore renewable projects, Bumi Armada’s Caspian subsea vessels do not benefit from this theme, as it seems those vessels are ‘stuck’ in the Caspian Sea given the mobilisation cost to bring the vessels out into other parts of the world is unfeasible,” it pointed out.

Valuation wise, it noted that Bumi Armada trades at a discount to Yinson Holdings Bhd’s 15 times price-earnings (PE). While Yinson holds many growth projects to justify a higher valuation, UOBKH Research said Bumi Armada’s risk-reward is now balanced taking into account the latter’s execution risk and the lack of new contract catalysts.

UOBKH Research retained “hold” on the stock with a target price of 50 sen based on five times the forecast 2024 PE.

Kenanga Research, meanwhile, has a 58 sen target price and “market perform” call.