Bumi Armada (BAB) announced that production levels are now at ~60% of pre shut down level for the Armada Kraken Floating Production Storage Offloading (FPSO) vessel, a significant and much-welcomed development. We are on this as it has far exceeded from our conservative target under a worst-case scenario assumption of a 3-month total shut down. However, it still has further work to do, on testing and investigations to stabilize and bring the vessel back to fully operational performance. We remain cautious on the near financial impact until it reaches stable operations, post-completion of all on-going testing and investigations. As such, we make no changes to our earnings assumption for now. On a separate development, BAB signed a non-binding Memorandum of Understanding (MoU) with Navigator Holdings Ltd to form a JV, Bluestreak CO2 Joint Venture. This could be its first foray into floating carbon storage and injection unit if it materialises. Long-term prospects of the Group remain intact with strong cash reserves and balance sheet. We maintain our Outperform rating with an unchanged TP RM0.70.

• Some relief. We believe the recent sell-down since the Armada Kraken shutdown announcement is overdone after RM1.3bn in market capitalisation was lost at the lowest share price. This is unjustified in our opinion given that the value equates to almost 2 years’ worth of revenue contribution from the FPSO. The announcement on partial operations is a relief to the market and will support sentiment until the FPSO reaches stable operational levels. Despite this positive surprise, we remain cautious on its operational stability until the completion of all testing and investigations.

• First foray into floating carbon storage and injection. Separately, BAB signed a non-binding MoU with Navigator Holdings Ltd, a listed entity in NYSE, operator and owner of the world’s largest fleet of handy-size liquefield gas carriers. The purpose of the MoU is to form a JV, Bluestreak CO2 Joint Venture with the aim to design and implement a value chain of shuttle tankers delivering to a floating carbon storage injection unit in the UK. This is in line with the UK’s Industrial Decarbonisation Strategy with potential market of over 30MT of CO2 per annum. It expects the first shipment of CO2 will take place three years after making the final investment decision if it reaches a deal with on-going discussions. A long-term benefit to BAB, this will help diversify its portfolio in addition to improving its ESG rating among developed countries and financiers, which will enable BAB to secure more contracts of this nature, and access to capital.

Source: PublicInvest Research - 22 Jun 2023