Analysts keep ‘buy’ call on Bumi Armada after sale of Armada Claire FPSO vessel

KUALA LUMPUR (April 26): Analysts have maintained their "buy" recommendations on Bumi Armada Bhd with target prices (TPs) between 80 sen and 87 sen after the company finalised the sale of its floating production storage offloading (FPSO) vessel, the Armada Claire, for US$20 million or RM88.9 million.

Through its wholly owned subsidiary Armada Balnaves Pte Ltd, the company pocketed a divestment gain of US$12 million in its financial results for the second quarter ending June 30, 2023 (2QFY2023). Its sale proceeds, received last week, will be applied towards a reduction of its corporate debt.

The divestment was due to Bumi Armada losing a six-year legal battle in Australia in 2022 against former client Woodside Energy Julimar Pty Ltd which terminated a charter contract worth RM1.46 billion for Armada Claire in 2016.

In a research note on Wednesday (April 26), MIDF Research maintained its "buy" recommendation with a TP of 80 sen, pegged on a price-to-earnings of 6.3 times to an earnings per share 2023 of 12.7 sen.

MIDF said it had factored in the absence of Armada Claire in its valuation of Bumi Armada’s financial performance.

“We like Bumi Armada for its robust and stable operations in the FPSO market and other offshore operations including its Caspian Subsea Construction, on the strength of elevated and stabilised crude oil prices and growing demand for more exploration and production (E&P) projects in the upstream, post-pandemic,” said MIDF.

Hong Leong Investment Bank (HLIB) had also maintained its "buy" call with an unchanged TP of 87 sen, pegged to a price-earnings multiple of six times of financial year forecast 2023 (FY2023F), which was at a 40% discount of its peer Yinson Holdings Bhd’s one-year forward multiple of 10 times.

“At less than five times FY2023F earnings currently, we think that Armada is highly compelling given its foothold in the FPSO business which provides steady cash flows and recurring income, coupled with speedy enhancement in its debt profile,” said analyst Jermaine Yap, adding that Armada was the top pick for the oil and gas sector.

“Overall, we are neutral on this development and it did not come as a surprise as the group has been guiding for the disposal of this particular FPSO for several quarters now,” said Yap.

Sustainability strategies to drive new infrastructure projects — chairman

On the same day, Bumi Armada’s chairman Tunku Ali Redhauddin Tuanku Muhriz said that the ongoing debt reduction and the strengthening of its balance sheet exercise had allowed the group to move forward and explore new projects.

“Moving forward, our sustainability strategies, which include gas as a transitional energy source, will drive new infrastructure projects,” he said in the group’s Annual Report 2022 released on Wednesday.

“We will also evaluate carbon capture injection and storage projects [to] accelerate our transition towards net zero carbon emission by 2050.”

He also added that the group would maintain its key focus on health and safety this year as it continues to drive the performance of its existing fleet while advancing ongoing projects.

“We have increased leadership vessel visits and have embedded an additional senior safety expert on our vessels to reinforce our safety culture and resultant behaviours.

“We continue to put safety as our utmost priority to safeguard our people while protecting our assets and the environment,” he said.

Bumi Armada’s share price closed 3.5 sen or 5.04% lower to 66 sen, valuing the company at RM3.88 billion.