Investment Highlights

• We maintain our BUY call on Bumi Armada with an unchanged fair value of RM0.51/share based on a discount of 30% to the group’s sum-of-parts (SOP) of RM0.73/share. The discount stems from potential impairments due to idle vessels, especially for the 2 offshore construction vessels in the Caspian Sea.
• Our forecasts are maintained as the group’s 9MFY20 core net profit of RM312mil (+70% YoY), excluding one-off impairments of RM331mil for offshore marine services (OMS), was in line with our expectations but above consensus.
• Assuming a flat QoQ 4QFY20, the results will translate to a fullyear net profit of RM414mil – 13% above street’s. Even so, we expect a stronger 4QFY20 earnings in the absence of any planned Armada Kraken shutdown, which occurred in 3QFY20.
• The group’s 3QFY20 core net profit slid 15% QoQ to RM102mil in tandem with revenue slipping by 7% to RM564mil largely due to Armada Kraken’s maintenance allowance being insufficient to offset the costs of its planned shutdown during the quarter. While Armada TGT1 in Vietnam had undergone a planned shutdown, there was no financial impact to the group.
• Bumi Armada’s 3QFY20 revenue for offshore marine services rose 10% QoQ on a 1ppt increase in vessel utilisation while its net profit plunged 65% to RM5mil from forex losses stemming from fixed currency deposits.
• For the main floating production & operation segment which accounted 84% for 9MFY20 group revenue, its operating profit climbed 30% QoQ to RM985mil due to the higher utilisation of Armada Kraken, which has delivered substantively improved operating parameters.
• The group’s firm order book has risen by 6% QoQ to RM18.2bil due to its 49%-owned Armada Sterling securing another 10-year extension to operate at the ONGC D1 field off Mumbai, India. Including options, the RM28.2bil potential order book represents 11.3x FY20F revenue.
• The Sharpoorji Pallonji Oil & Gas-Bumi Armada JV, which is building the US$1.3bil FPSO in Singapore for the KG-DWN 98/2 Cluster-II field off Kakinada in India, has issued a force majeure notice for delayed delivery due to Covid-19 constraints. For now, management is unable provide clarity on any potential penalties in the 30%-owned JV.
• Management does not expect to raise any new debt or equity to meet the group’s RM1.7bil due for repayment within the next 12 months. We note that its FY20F operating cash flow is expected to generate RM1.4bil together with gross cash of RM923mil, which could be slightly supported by an asset monetisation programme. This includes the disposal of 3 idle offshore support vessels (OSV). Currently, 11 vessels are cold-stacked as an OSV was sold in 3QFY20 vs. nil in 2QFY20.
• As the group has significantly improved core earnings since stabilising Armada Kraken’s operations, we view that the 48% discount to BV as unjustified.

Source: AmInvest Research - 19 Nov 2020