Bumi Armada long-term earnings visibility intact

PETALING JAYA: Analysts have maintained contrasting views on Bumi Armada Bhd after the company secured two contracts worth RM578.4mil from India’s state-owned Oil and Natural Gas Corp Ltd through two of its joint ventures (JVs).

Kenanga Research pointed out that last year, the company addressed its short-term debt rollover needs by securing US$400mil in new loans.

This move strengthened Bumi Armada’s balance sheet and positioned it to invest in future projects such as the Blue Streak CO2 JV and Akia production sharing contract (PSC).

Capital expenditure is likely to begin in 2026.

“Starting financial year 2025 (FY25), however, we anticipate lower earnings as its floating production, storage and offloading (FPSO) Kraken transitions to its extension period.

“A potential merger with MISC Bhd could trigger a valuation rerating for Bumi Armada’s FPSO business, especially if the combined entity achieves a higher price-earnings ratio.

“Additional detail on this merger may emerge by August,” said the research house.

Kenanga Research said it liked the company due to its better net gearing position, long-term earnings visibility from a sizeable order book of above RM19bil, and a still reasonable forecast price earnings ratio of 4.5 times in FY25 compared with its five-year mean of 4.7 times.

However, according to the research house, Bumi Armada’s outlook on securing FPSO jobs remained uncertain while its Akia PSC venture risk is higher than typical FPSO contracts.

Kenanga Research is keeping a “market perform” call on the counter, equivalent to a “hold” call, with a target price of 60 sen.

Meanwhile, CIMB Securities said the newly secured contracts in India represented a positive development for Bumi Armada.

This is because they would provide the company a stable income stream over the next three years compared with the previous yearly renewal arrangement.

For context, the two JVs, which the group owns a 49% stake of in each, are Armada C7 Pte Ltd and Shapoorji Pallonji Armada Oil & Gas Services Pte Ltd, which meant the total net contract value of the new deals for Bumi Armada is about RM283.4mil.

“We estimate that the three-year extension will contribute about RM170mil to Bumi Armada’s share of profit from the JV, or RM56.7mil per year, assuming a 60% net margin as the FPSO is being fully depreciated with no outstanding borrowings, and its 49% stake in the JVs,” said CIMB Securities.

Accordingly, the research firm has increased its FY25, FY26, and FY27 earnings forecasts by 7.1%, 10%, and 9.4%, respectively for Bumi Armada, and increased its target price by two sen to 71 sen, factoring in these three-year contracts.

“We maintain our ‘buy’ call, underpinned by Bumi Armada’s strong long-term earnings visibility, supported by a substantial order book of RM20.7bil and healthy net gearing of 0.2 times, which provides ample capacity for future growth,” added CIMB Securities.

The stock closed unchanged yesterday, holding to the price of 54 sen.