Analysts unfazed by suspension of FPSO ops

PETALING JAYA: Analysts are unfazed by the suspension of operations of Bumi Armada Bhd’s floating production storage and offloading (FPSO) vessel Armada Perdana, considering that the vessel had no revenue contributions previously, coupled with non-receivables for a prolonged period.

PublicInvest Research said it had conservatively not accounted for the contract and maintained it “outperform” recommendation on the counter with an unchanged target price of RM0.90.

“We are not fazed with the suspension, considering Armada Perdana had no revenue contributions previously (however, we understand there was a minimal revenue contribution in Q1 FY17) coupled with non-receivables for a prolonged period.

“The suspension is assumed to not have any impact on Bumi Armada’s performance as it had been fully provided for in FY16,” it said in a note.

The international offshore energy facilities and services provider had announced on Wednesday that its units Armada Oyo Ltd (AOL) and Bumi Armada (Singapore) Pte Ltd (BASPL) were suspending the bare-boat charter (BBC) and operations and maintenance (O&M) contracts respectively, on the FPSO vessel Armada Perdana to Erin Petroleum Nigeria Ltd, a subsidiary of Erin Energy Corp.

It said the suspension of operations were due to longstanding delays in the BBC payments due to Bumi Armada, as well as irregular payments on the O&M contract.

It said the situation was brought about by Erin’s refusal to provide the group with a clear structure of how it intended to comply with the contractual agreements and repay the amounts owing to Bumi Armada.

AmInvestment Bank Research also maintained its “hold” recommendation on Bumi Armada with unchanged forecasts and fair value of RM0.79 per share.

“Recall that two of Bumi Armada’s FPSO vessels, including Armada Perkasa, were operating in Nigeria, but was only being remunerated for their O&M services since Q2 2016, but without being compensated for the bare boat charter, which makes up the main bulk of their revenues,” it said.

It noted that with the suspension of Armada Perdana’s operation, Bumi Armada’s activities in Nigeria had reached an end, with the only remaining FPSO operation in Africa by Armada Olombendo having achieved first oil in Angola on February 8 this year.

Maybank Investment Bank Research, however, expects a “knee-jerk reaction” from the suspension of the FPSO vessel Armada Perdana.

It said the suspension was sentiment negative, but not entirely unexpected.

“Bumi Armada, in our view, needs a successful execution of its four projects in-hand and deliver its earnings to revive its weakened franchise value,” it said.

The stock closed 1 sen lower yesterday at RM0.70.