Bumi Armada (BAB) secured a one-year contract extension for Armada Sterling II Floating Production Storage Offloading (FPSO), worth USD43m via its 49.99%- owned JV company SP Armada Oil Exploration Pte Ltd. To recap, Armada Sterling II FPSO was originally signed on 13 March 2013 with a nine-year contract valued at USD740m with a seven-year extension option on yearly basis, with aggregate value of USD340m. The original nine-year time-charter will expire on 7 March 2024. The contract extension is expected given the excellent operational performance with 100% uptime and, the Cluster-7 field remaining an active production field. We make no changes to our earnings estimates on account of this, having assumed this as part of our replenishment assumption. On another note, although there is no further update on the FPSO Armada Kraken shut-in, we reckon the recent sell down of its share price is overdone. While financial impact may be seen short-term, it is nonetheless limited, as long-term prospects remain solid. All-in, we retain our Outperform rating with an unchanged TP RM0.70. 

• Sell down overdone. Since the announcement of the FPSO Armada Kraken shut-in, BAB has lost RM1.1bn in market capitalisation. This is approximately 2 years’ worth of revenue contribution estimates from the FPSO. Although further updates are still pending from the management, we believe its financial impact is contained. BAB has fully repaid Kraken’s project finance debt and is able to absorb the financial impact given its strong cash reserve of RM678m with net gearing ratio of 0.82x.

Source: PublicInvest Research - 19 Jun 2023