Bumi Armada (BAB) announced the production level for the Floating Production Storage Offloading (FPSO) Armada Kraken is now at 90% of pre- shut-in level after it reconditioned the hydraulic submersible pump (HSP) transformers, a significant and positive development. To recap, the FPSO was shut down on 2nd June 2023 following the failure of critical HSP transformers. The FPSO then managed to achieve partial operation at 60% on 21st June 2023. This exceeds our previous targeted assumption of a 3-month total shut down. Under this bearish assumption, we cut FY23 revenue and earnings estimates by RM150m and RM66m respectively. Although we are hopeful that the current level is sustainable with no further hiccups until it achieves full capacity, we remain conservative and make no changes on our numbers for now until we have more clarity on its financial impact in the upcoming quarter’s results. Our Outperform rating is affirmed with an unchanged TP RM0.70, with scope for earnings upsides.

• Huge relief. Since the shut-in, the market has reacted over-negatively to this development with share price of BAB slumping up to 34%. We believe the discount is unjustified given the loss in market capitalization approximates to 2 years’ worth of revenue contribution estimates from the FPSO. With the production level now at 90% of pre-shut-in level, this will provide huge relief to the market should the current level be sustainable with no further hiccups toward achieving full capacity. Nevertheless, we remain conservative and make no changes on our numbers until we have more clarity on its full financial impact.

Source: PublicInvest Research - 21 Jul 2023