A good chance to accumulate ARMADA 5210 BUMI ARMADA BERHAD given the recent share price weakness

 A good chance to accumulate  ARMADA 5210 BUMI ARMADA BERHAD given the recent share price weakness



Bumi Armada Bhd topped the most actively traded counter list on Bursa Malaysia on June 6.


However, the counter took a dive, losing some 24% to close at 48 sen following reports of a vessel shut in.


This was due to a hydraulic submersible pump transformer failure at its FPSO Armada Kraken.


According to Affin Hwang Research, this incident came as a surprise as Kraken had been operating at 94% efficiency YTD before this incident and steady over the past 4 years.

                

This is certainly a negative development and a drag on investors’ sentiment.


Affin Hwang maintains its buy rating but lower DCF-derived 12-month target price to 80 sen from 85 sen previously.                

            

With no clear indication on the timeline to restart the FPSO, the research house is taking a cautionary approach and assuming a 90-day downtime which leads us to cutting its 2023 earnings by 8%.

                                

The research house revised downwards its 2024 earnings by 9% to reflect the time needed for Kraken to ramp up production and for bareboat charter (BBC) rates to gradually recover.


Its 16% earnings cut for 2025 has factored in deeper BBC renewal rates for Kraken post its firm contract expiry.

                             

Nevertheless, Affin Hwang reckons the solid track record under the helm of current CEO Gary Neal in in handing over Kraken to EnQuest (client) within a short span of time back in 2018, would firmly put the company back on track.


The contract is expected to last until March 2025, with 17 annual extension options available thereafter.


Kraken is BAB’s second largest FPSO contributor, accounting for 20–25% of overall profit with debt all fully repaid.


Bumi Armada is currently assessing alternative technical solutions with EnQuest to resume vessel production, and targets to be on a phased basis in the coming weeks.

                                 

Transformer downtime typically up to 60 days.


Affin Hwang does not view this event as a major setback and involves a quick fix, relative to the more serious issues faced by Kraken in 2018.


Bumi Armada’s already low 5x PER valuation for 2023-24 should cushion the share price from declining too sharply.


As such, any price weakness is seen as a good opportunity to accumulate.


In addition, the maiden Sterling V contribution, potential new FPSO and subsea construction vessels contract wins are some of the catalysts in 2023.


In most cases, news like a shutdown would cause a knee jerk reaction but over time, the counters will be able to reflect its true value.


#ARMADA

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