KUALA LUMPUR: Analysts were quick to act on news of Bumi Armada Bhd's shut-in of top performing floating production storage and offloading (FPSO), Armada Kraken, by downgrading the stock and cutting its target price on a worse case scenario of between three and six months of idle time given the absence of a potential restart of production date.
The group's share price took a beating, as selling pressure saw the stock hit a low of 47 sen before settling almost 24 per cent lower at 48.5 sen at close trade yesterday. More than 266 million shares changed hands.
Hong Leong Investment Bank (HLIB Research) downgraded the stock to a "Sell" and trimmed the company's financial year 2023 (FY23) profit forecast by 38 per cent.
HLIB Research said it decided to make an arbitrary assumption of a six-month downtime for the said FPSO, as it does not have clarity on Kraken's shut-in timeline as of yet nor was management able to provide one as well. It estimated that Kraken FPSO accounted for approximately 35 per cent of the company's revenue contribution in FY22. It also cut the group's share target price to RM0.54 from RM0.87 previously.
Meanwhile Public Investment Bank Bhd (PublicInvest) shaved off RM150 million from its FY23 revenue forecast, while maintaining its outperformed rating. It explained that it was taking a conservative stance by assuming the shut-in period would be prolonged for a quarter and only return to production on a phased basis.
"There is significant scope for upward revision however if Kraken could restart at below capacity in the coming weeks before it steps up its production until it meets the full capacity as per its restart plan," it noted.
PublicInvest believes Bumi Armada can absorb the financial impact given its strong cash reserve of RM678 million with net gearing ratio of 0.82 times after it fully repaid Kraken's project finance debt three months ahead of schedule.
"Bumi Armada's long-term outlook remains solid with stable recurring income from its FPSO operations," it noted.
PublicInvest has maintained its "Outperform" rating on Bumi Armada based on stable long-term recurring income, while reducing its target price to RM0.70 from RM0.75 previously.