Bumi Armada (BAB) recorded core PATAMI (net profit) which dipped to RM48.7m in 2QFY23 (-76.6% QoQ, -77.5% YoY) due to impact from FPSO Kraken’s shut down. Cumulatively, BAB recorded core net profit of RM257.3m in 1HFY23, (-36.3 YoY), lagging our and consensus estimates at 33% and 37% of full-year numbers respectively. To recap, the FPSO was shut down on 29th May 2023 following the failure of hydraulic submersible pump (HSP) transformers, though now back to 100% production level by stages as per Table 2. Although the issue has been resolved earlier than our target, the financial impact is more severe than our early estimates given lack of guidance in the announcement. To account for the impact, we cut our earnings by -11%/- 2%/-3% for FY23F/FY24F/FY25F. Nevertheless, we retain our Outperform call with lower sum-of-parts derived TP of RM0.65 (from RM0.70) after we rollover our DCF-based valuations.

• More severe than expected. In the first announcement of the said failure, we noted that BAB was unable to estimate the financial impact, though saying it was likely to be “material”. Based on that, we cut our revenue and earnings estimates by RM150m and RM60m respectively, then. Yet, the actual 2QFY23 result has shown the financial impact is more severe as we gather that there were two HSP transformer failures, resulting in the availability of only 1 HSP pump which led to sub-optimal production and subsequently to a 23-day total production outage. Based on the chronology of events, we estimate FPSO Kraken’s utilisation level only achieved 64% in 2QFY23.
  ​​​​​​​To mitigate risks in the future, BAB plans to install an additional HSP transformer as a redundancy on top of three existing online HSPs. It also plans to replace two refurbished HSPs with new HSPs in September 2023 to improve operational reliability.

• Better 3QFY23. On a sequential basis, we expect 3QFY23 to see better earnings as FPSO Kraken has returned to pre-incident functionality since 7th August 2023. We estimate FPSO Kraken utilisation level would achieve c.90% in 3QFY23. Management guided no further unexpected cost will be expensed off in the future in relation to the incident. Any insurance or warranty claim will be concluded upon the completion of Root Cause Assessment (RCA).

Source: PublicInvest Research - 28 Aug 2023