HLIB stays slightly positive on Bumi Armada

KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) is slightly positive on Bumi Armada Bhd, which allowed the continuing flow of oil from a suspended contract with Erin Petroleum Nigeria Ltd, but feels that proceeds from a one-off cargo intake will be immaterial.

In a note to investors, HLIB said the continuing flow of oil would not generate any revenue for the company as the client had stopped its charter payment.

Bumi Armada announced on Thursday that a portion of the proceeds from the sale of the cargo would be used to partially settle Erin Petroleum’s outstanding payments to the group.

“The one-off cargo would generate proceeds, where the amount would be offset against any outstanding amount owned by Erin Petroleum to Armada,” said the research firm.

In June, Bumi Armada suspended its operations and maintenance contracts with Erin Petroleum for the Armada Perdana vessel, which operates at the Oyo field, off Nigeria.

Bumi Armada said Erin Petroleum had delayed payments for the bare-boat charter contract, and made irregular payments for the operations and maintenance contract.

HLIB said allowing oil to continue flowing for the floating production storage and offloading has enabled better discussions with the client for the settlement of its debts, which could be more beneficial in the long-run term.

However, it said discussions could be dragged further before a significant outstanding sum owed could be recovered.

HLIB has maintained its “hold” call on Bumi Armada, with an unchanged target price of 72 sen.

“Earnings are expected to be stronger this year with new projects coming on stream. However, the continued delay in the delivery of Armada Kraken would further exert cautious sentiment on the stock,” it said.