KUALA LUMPUR: Bumi Armada Bhd's share price has dropped dramatically in the last month, most likely owing to retail selling, as institutional holdings in the stock are low.
CGS-CIMB Research said the main reason is the onset of the Russia-Ukraine conflict, which caused concerns over Bumi Armada's exposure in Russia.
CGS-CIMB Research said Bumi Armada's share price fell 27 per cent from 52 sen on February 24, the day of the Russian invasion, to a low of 38 sen on March 15.
Bumi Armada has two subsea construction assets in the Caspian Sea or the Armada Installer and Armada Constructor, that have worked for Russia's vertically-integrated oil company Lukoil up to December 2018.
The company had recently secured a new contract to perform pipelay work for Lukoil that will begin in the second quarter (Q2) 2022.
Additionally, it said Bumi Armada sold its three ice-class offshore service vessels (OSVs) to Lukoil on January 20, 2022, for US$44.5 million.
However, the risks are manageable as Lukoil is not owned by the Russian state and has not been subject to the US or European sanctions, CGS-CIMB Research said.
"Importantly for Bumi Armada, the US$44.5 million proceeds from the sale of the ice-class vessels have been remitted to Malaysia and used to pare down its corporate borrowings.
"Also, the ongoing contract for the two subsea construction vessels is not material to Bumi Armada. Therefore, we believe the company has the right to claim the costs of all preparatory work done to date even if the pipelaying work is ultimately abandoned," it said.
CGS-CIMB Research anticipates Bumi Armada to 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.
"Hence, the risks arising from the Russia-Ukraine war on Bumi Armada may be manageable, in our view," it said.
CGS-CIMB Research has upgraded Bumi Armada to 'Add' from the previous 'Hold' with an unchanged target price of 55 sen.