KUALA LUMPUR: The proposed merger between Bumi Armada Bhd and MISC Bhd's offshore business will boost Bumi Armada's valuation, according to Public Investment Bank Bhd (PublicInvest).
The research firm is optimistic about the new entity following the merger, highlighting its enhanced financial strength to undertake capital-intensive floating production storage and offloading (FPSO) projects in the future.
"The existing Bumi Armada's shareholders also may benefit from the incremental earnings from 12 operating assets under MISC and being part of the Petronas group," it said in a research note.
Furthermore, PublicInvest raised Bumi Armada's earnings forecast after its FPSO vessel, Armada TGT, secured a two-year charter extension worth US$74.4 million (RM332.7 million).
With the recent extension of the Armada TGT-1 contract, the research firm said the order book now stands at RM10.2 billion for the firm contract period until 2034.
It raised the company's earnings forecast for financial years 2025 and 2026 (FY25/26) by 10 per cent on average to reflect the extension.
It maintains an "outperform" call with a slightly higher target price of 67 sen a share from 65 sen previously.
"Although we expect the depressed sector-wide valuation will persist due to the downside risk for oil prices, we still like Bumi Armada due to its long-term recurring income from its FPSO chartering contracts," it said in a research note.
MIDF Research also adjusted its earnings forecast for FY24/FY25/FY26 upward by 5.0 per cent, 4.0 per cent and 2.0 per cent, respectively.
It maintains a "buy" call on Bumi Armada with a target price of 88 sen a share, up from 85 sen previously.
It said the optimism over Bumi Armada's prospects is driven by lesser impairment from Olombendo and Kraken as it nears the end of their charter.
Additionally, the research firm is optimistic about the extension of the TGT-1 charter, the commencement of Sterling V's charter with a reduced debt load, and the Akia PSC progressing to appraisals by the end of the year.
"However, we remain vigilant on the result of the merger discussions with MISC, with uncertainties on the feasibility remaining unseen as both Bumi Armada and MISC continue business as usual until a binding agreement is signed by FY25. This led to a slight upward revision for our earnings forecast," it added.