UOB Kay Hian said a merger may be “too difficult to pull off”, citing potential stakeholder resistance and a lack of financial synergy.
“While there are complementary areas and synergies, we believe the stumbling blocks for such a merger are too great,” it said.
The potential resistance may “make the whole exercise futile”, it added.
It also noted that Bumi Armada’s Caspian Sea subsea vessels remain loss-making, making it a key drag for any potential acquirer.
In its latest issue, The Edge Malaysia weekly reported that MISC, which is controlled by national oil company Petroliam Nasional Bhd, is in talks with Bumi Armada shareholders to acquire a substantial stake in the latter.
The merger could create an entity rivalling Japan’s Modec Inc that owns the most floating production storage and offloading (FPSO) vessels.
In response to the article, MISC said in a filing on Tuesday that it continues to explore growth opportunities in its ordinary course of business, though there is currently “no development that would necessitate a disclosure”.
Meanwhile, Bumi Armada said it is “actively exploring investment opportunities” that have the potential to add value to its shareholders.
Bumi Armada’s largest substantial shareholders are Ananda with a 34.58% stake, funds under Permodalan Nasional Bhd with a 13.25% stake, and Saluran Abadi Sdn Bhd, the vehicle of Farah Suhanah Ahmad Sarji with a 6.08% stake.
The 86-year-old tycoon is Malaysia’s sixth richest individual with a net worth of US$4.9 billion (RM23 billion) as of yesterday, according to Forbes.
An oilfield services company, Bumi Armada provides marine transportation, engineering and maintenance services to the O&G industry. MISC owns and operates liquefied natural gas, petroleum and product vessels, tank terminals, and floating storage units and production systems.
UOB Kay Hian said investors should continue buying MISC given that the stock is still undervalued but take profit on Bumi Armada following the recent run-up in its share price.
Year-to-date (YTD), Bumi Armada has gained 18% to 59 sen per share at the time of writing, valuing it at RM3.47 billion. MISC is up 18.9% YTD at RM8.67, with a market capitalisation of RM38.7 billion.
‘A waste of financial resources’
Meanwhile, BIMB Securities Research opined there was “a lack of economic justification” for MISC’s potential acquisition of a stake in Bumi Armada.
In a research report, it noted that numerous other investment opportunities could provide greater returns for shareholders.
“For example, there is strong demand for FPSO currently amid the upcycle in offshore development projects. We understand that MISC is evaluating new FPSO project opportunities as the ongoing project in hand (FPSO Mero 3) is close to completion,” it said.
It added that locally, there will be tenders for two FPSO projects, namely the new Salam-Patawali FPSO (under ConocoPhillips) and the Kikeh replacement FPSO (PTTEP).
BIMB said that given the funding issues faced by the company and FPSO players globally, the said acquisition is “a waste of financial resources”.
For the first quarter ended March 31, 2024, Bumi Armada’s net profit rose 19.7% to RM240.54 million from RM201.01 million a year earlier. Revenue for the quarter rose 16.8% to RM635.54 million from RM543.99 million previously.
Meanwhile, MISC’s net profit for the fourth quarter ended Dec 31, 2023 fell 2.7% to RM627.30 million from RM645.00 million a year ago. Quarterly revenue rose 2.5% to RM4.28 billion from RM4.17 billion previously.
Its FY2023 net profit came in 16% higher at RM2.12 billion versus RM1.82 billion a year earlier on better charter and freight rates.