• Keep BUY and SOP-based TP of MYR0.73, 51% upside. We are long- term positive on Bumi Armada’s MoU with Navigator Holdings – this could potentially generate a new source of income for the former as it embarks on a global energy transition agenda. Our call is still premised on the assumption that the Kraken shutdown will be resolved in the short term.

• To provide CO2 solutions. BAB announced the signing of a non-binding MoU with Navigator Holdings, the owner and operator of the world’s largest fleet of handysize liquefied gas carriers, to establish a JV company (to be owned equally) to provide CO2 shipping and injection solutions in the UK. The JV is looking to design and implement a value chain of shuttle tankers delivering to a floating carbon storage & injection unit. It is estimated that the potential market in the UK is over 30m tonnes of CO2 pa from emitters that are not proximate to the existing awarded carbon capture, usage and storage clusters. Both parties are in initial discussions with a number of emitters, and if successful, the first shipment of CO2 is anticipated to take place three years after taking the final investment decision.

• Minimal earnings impact for now. Overall, we are long-term positive on the venture – this could potentially generate a new source of income for BAB as it embarks on a global energy transition agenda. It was stated that the company operates the only FPSO which uses an amine recovery system to extract hydrogen sulphide (H2S) from production gas, similar to what is used in many of the CO2 capture-recovery systems worldwide. However, pending further details from management, near-term earnings impact is likely to be minimal, and funding requirement would depend on the size of the project pipeline. As such, we maintain our earnings estimates.

• Kraken status. Separately, BAB announced that following the recent start- up of the Kraken FPSO, production is currently at c.60% of pre-shutdown level. There is still further work, testing and investigations ongoing to stabilise and bring the vessel’s operational performance back to pre- shutdown level. According to upstream, the UK’s Health & Safety Executive (HSE) is examining the circumstances that led to the shutdown. It was also reported that only one of the four hydraulic submersible pumps (HSPs) is available for use, while the other three need to be replaced. Note that Armada Kraken accounted for >30% of our valuation and any long-term disruption would present a downside risk to our TP, which implies FY24F P/E and P/BV of 5.4x (below its 5-year mean of 6x) and 0.6x (below +1SD from its 5-year mean). It also incorporates of a 6% ESG discount, based on our ESG score of 2.7.

• Downside risks: Contract cancellations, failure to win new contracts, and a further deterioration in Armada Kraken’s operations.

Source: RHB Research - 22 Jun 2023