KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research believes there is now upside potential to its financial year 2023 earnings forecasts for Bumi Armada Bhd, with the Armada Kraken floating production storage and offloading (FPSO) restored to pre-shutdown production levels.
Yesterday, Bumi Armada announced that an additional hydraulic submersible pump (HSP) transformers for the FPSO has been reconditioned. With three out of four transformers operational, the vessel's operational performance has been restored to pre-shutdown levels.
"Given the group's current developments, we believe that a downtime of six months is prudent enough (for additional repair and maintenance costs due to Kraken's shutdown). To be conservative, we make no changes to our forecasts and we now believe that there is a possibility of upside earnings risk to our FY23 forecast net profit estimates," HLIB Research said.
The firm previously imputed a six-months downtime for the FPSO based on a daily charter rate of US$480,000 per day or US$175 million per year.
"In view of this Kraken FPSO issue likely being entirely resolved by FY23 and assuming full status quo in FY24 forecast, we maintain our BUY recommendation on Bumi Armada with a target price of RM0.71 – pegged to a price to earnigs ratio multiple of six times on mid-FY24f earnings, which is at a 35 per cent discount to its peer Yinson's one-year forward multiple of nine times. Bumi Armada is our top pick for the sector," the research firm said.