Long-term vessel contracts to keep Bumi Armada afloat

Bumi Armada’s FPO projects are based on long-term contracts and will continue to generate the majority of its revenue and earnings going forward


THE impairments and provisions made by Bumi Armada Bhd in its recent first quarter of 2020 (1Q20), were deemed necessary for the offshore oilfield services provider to guard against uncertainties in the oil and gas (O&G) market.

A spokesperson for the company said Bumi Armada’s provisions and impairments reflected the group’s prudent business approach.

“The impairments taken in 1Q20 reflected the anticipated impact of low oil demand and reduction in oil company spending in the offshore O&G sector on the offshore marine services (OMS) business,” he told The Malaysian Reserve recently.

He said globally, oil companies have started reducing their planned capital expenditure (capex) spend for 2020 and the impairments taken in 1Q20 against the OMS business reflected Bumi Armada’s anticipated impact to the business.

“The floating production and operation (FPO) business generates over 80% (83.6% in 1Q20) of the group’s revenue. Its projects are based on long-term contracts and will continue to generate the majority of our revenue and earnings going forward,” the spokesperson added.

The company recorded a net loss of RM223.97 million in 1Q ended March 31, 2020, against a net profit of RM62.21 million in the same quarter last year, mainly due to impairment losses on vessels recognised in 2020.

Revenue for the period rose by 12.4% to RM552.62 million compared to RM491.61 million in the same period a year ago.

As at the end of the quarter, the group reported that its firm orderbook stood at RM18 billion with additional optional extensions of up to RM10.3 billion.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Noor Athila Mohd Razali said the management disclosed that it continues to actively seek new contracts for its two subsea construction vessels in the Caspian Sea under the OMS business.

MIDF Research has maintained a ‘Buy’ call with an unchanged target price (TP) of 56 sen, with the ‘Buy’ recommendation is premised on the firm’s anticipation of further improvements in its OMS operating business following potential contract wins

in the Caspian Sea, as well as further disposal of idle and unused vessels which in turn will improve earnings visibility for the group overall.

Bumi Armada CEO Gary Neal Christenson noted in the 1Q report that low oil prices will result in cuts or delays in investment in the O&G sector, especially for new projects, which would reduce potential growth opportunities.

As an offshore energy facilities and services provider, he said the company will need to operate its assets at the highest optimum levels, secure new charters for available assets and dispose of surplus ves- sels in 2020.

“We need to remain vigilant on costs and ensure we are reducing our debt, while managing our overall balance sheet,” he added.

Affin Hwang Investment Bank Bhd analyst Tan Jianyuan tweaked its forecasts slightly on housekeeping adjustments fol- lowing the release of the 2019 annual report.

“We upgrade our rating to ‘Hold’ (from ‘Sell’) after raising our sum-of-the parts-based TP to 20 sen (from 13 sen) as we roll forward our valuation,” he said in a note on Monday.

Bumi Armada shares closed at 25 sen yesterday, valuing the company at RM1.5 billion.