Bumi Armada’s ice class vessels sales to improve recurring earnings

The group’s balance sheet will also improve on the back of healthy operating cashflow 

by S BIRRUNTHA / Pic Source: bumiarmada.com

BUMI Armada Bhd’s recurring earnings in the financial year 2022 (FY22) and FY23 are expected to improve following the sale of its ice class vessel companies, according to RHB Investment Bank Bhd (RHB Research). 

Its analyst Sean Lim noted that the absence of losses from these companies will boost recurring earnings by 6% to 8% over the group’s two financial years. 

“Bumi Armada is expected to record a one-off loss of RM25 million from its disposal of the ice class vessel companies and we expect its FY22-23F recurring earnings to improve by 6% to 8% with the absence of losses from these companies. 

“We expect its balance sheet to improve on the back of healthy operating cashflow, led by stable floating production, storage and offloading (FPSO) operations and continuous asset monetisation,” he wrote in a research note on the company yesterday. 

The investment bank has maintained a ‘Buy’ call on Bumi Armada with a target price (TP) of 62 sen as it does not incorporate the offshore marine services assets into its valuation. 

The TP incorporates a 2% environmental, social and governance discount, based on a scoring of 2.9. 

“Our TP implies FY22F price-toearnings and price-to-book value of 6.1 times (below its five-year mean of 7.2 times) and 0.83 times (slightly below plus two standard deviations from its five-year mean at 0.9 times),” Lim stated. 

Moving forward, Lim said the downside risks for Bumi Armada include contract cancellations, weaker offshore support vessel (OSV) utilisation rates and a deterioration in Armada Kraken’s operations. 

Bumi Armada has proposed to dispose the four wholly owned subsidiaries which own three ice class vessels (Bumi Uray, Bumi Pokachi and Bumi Naryan Mar) to PJSC Lukoil, a Russian oil and gas integrated company, for US$44.5 million (RM186.46 million) cash. 

The disposal is expected to be completed by the first quarter of 2022 (1Q22). 

Lim noted that the vessels have been working for Lukoil in the Caspian Sea, Russia, since 2016 under three charter party contracts. 

The companies have recorded a combined loss after taxation of RM56.6 million in the first nine months of 2021, and have combined net assets of RM219.9 million as of 3Q21. 

“With that, Bumi Armada is expected to record a RM25 million loss on disposal. The bulk of the proceeds (US$38 million) will be used to reduce its corporate debt, while the remaining US$6.5 million will be kept for working capital purposes. 

“Despite recording a disposal loss, we are generally positive as the monetisation of non-core assets will continue to strengthen its balance sheet,” Lim said. 

Post disposal, RHB Research expects Bumi Armada’s offshore marine services segment to be left with three OSVs, two subsea construction vessels and one joint venture subsea construction vessel. 

Echoing similar views, MIDF Amanah Investment Bank Bhd has maintained a ‘Buy’ call on Bumi Armada with an unchanged TP of 72 sen. 

It said the proposed disposal of its four subsidiaries is in line with Bumi Armada’s strategic plans and intention, as previously reported in 3Q21, to exit the offshore marine services division. 

“The expected cash inflow would enable Bumi Armada to repay and reduce its corporate debt, as well as focusing its resources on its current core business segments, namely its FPSO. 

“As such, we reiterate our positive view on Bumi Armada, based on the group’s resilient mitigation and future operational plans, as well as for its strong international standing as an oil and gas service company,” MIDF stated in a note yesterday. 

MIDF noted that Bumi Armada expects an impact on depreciation in its 3Q21 earnings by 5.5%, hence it revised its FY21 earnings estimate downward slightly by a marginal 1.2%. 

Nevertheless, MIDF retained its FY22 and FY23 earnings forecast for Bumi Armada. 

Shares of Bumi Armada closed 0.94% higher at 54 sen yesterday, giving it a market capitalisation of RM3.16 billion.