Russian risks 'manageable' for Bumi Armada despite significant de-rating: CGS-CIMB

THE Russia-Ukraine war may have appeared to batter Malaysia-listed Bumi Armada's share price over the past month, but CGS-CIMB believes risks faced by the oilfield services company are manageable.

The research house has upgraded its rating on the stock to "add" from "hold" at an unchanged price target of 55 sen.

According to analyst Raymond Yap, Bumi Armada's perceived exposure to Russia has caused concerns among investors which, in turn, led to retail selling and caused its share price to de-rate significantly.

Notably, the stock fell 27 per cent on the day of Russia's invasion Ukraine on Feb 24, and subsequently to a low of 38 sen on Mar 15.

Bumi Armada has 2 subsea construction assets in the Caspian Sea that have worked for Russia's vertically integrated oil company, Lukoil, up until December 2018.

These assets recently secured a new contract from Lukoil to perform pipelay work, which Yap highlighted as not material to Bumi Armada. The contract is due to commence in Q2 of FY2022.

"We think that Bumi Armada will proceed with the Lukoil work and that it may be possible to remit profits back to Malaysia via non-Russian banks' continued access to the Swift payments systems," said Yap in a report on Friday (Mar 18).

He also believes the group has the right to claim for the costs of all preparatory work done to date - even if the pipelay work is ultimately abandoned.

Earlier this year in January, Bumi Armada had sold 3 ice-class offshore support vessels to the Russian company for US$44.5 million. Yap highlighted how proceeds from the sale were remitted to Malaysia and used to pare down the group's corporate borrowings.

Citing data from Bloomberg and Lukoil's public filings, Yap noted that Lukoil is 28.33 per cent-owned by former Soviet deputy oil and gas minister Alekperov Vagit Yusufovich. Another 43 per cent of its shares are owned by institutional investors including Vanguard, Blackrock and Fidelity Investments.

Only 9.3 per cent of the company is owned by Russian billionaire Fedun Leonid.

"Lukoil is not owned by the Russian state and has not been subject to US or European sanctions," said Yap.

The analyst also sees potential upside from Bumi Armada's ongoing bid for TotalEnergies' Cameia FPSO (floating production storage and offloading) project in Angola.

Should the company win this project, he estimates the company may need to fork out about US$90 million in equity and undertake a RM500 million (S$161.3 million) rights issue. This is assuming that it takes a 50 per cent stake in the project, and that TotalEnergies funds 42 per cent of capital expenditure (capex) with debt funding comprising 48 per cent of capex.

"Tight FPSO contractor capacities globally suggest that day rates and IRRs (internal rates of return) may be strong, and we would be positive if Bumi Armada wins the project. However, the downside risk is that the rights issue may be negative for its share price in the immediate term," he said.

READ MORE:

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• Bumi Armada slips 21% on termination of FPSO vessel contract
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