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.

• The group’s FY20 core net profit of RM483mil (+34% YoY), excluding one-off impairments of RM357mil for offshore marine services (OMS), was above expectations, coming in 29% above street’s.

• Even though our FY20F earnings was 11% above market’s, Bumi Armada’s results exceeded our estimates by 16% due to impressive deliveries from the core floating production & operation (FPO) and offshore marine services (OMS) divisions.

• However, as there were some lumpy one-off RM12mil forex gains for the OMS segment, we have marginally tweaked FY21F–FY22F earnings, which were already 14%–19% above market consensus.

• Bumi Armada’s 4QFY20 core net profit surged 68% QoQ to RM171mil largely from higher contribution from the Kraken FPSO, which is operating at a near-peak utilisation rate of 99% and lumpy gains from the OMS division, which sold 2 vessels.

• The outstanding performance largely came from the OMS segment which registered an 4QFY20 operating profit that surged 5.3x QoQ to RM26mil, notwithstanding its revenue decline of 11% as OSV utilisation fell to 49% from 56% in 3QFY20. This stemmed from lumpy forex gains and absence of management fees which were incurred in 3QFY20.

• The FY20 operating profit of the main FPO segment, which accounted 85% of group revenue, rose 36% QoQ to RM1.3bil. This was attributed to the higher utilisation of Armada Kraken, which has delivered substantively improved operating parameters over the past quarters. Meanwhile, the group’s firm order book has fallen by 12% QoQ to RM16bil from revenue depletion and forex variations.

• 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, India, has been allowed to delay the delivery of the vessel from 2H2021 due to Covid-19 constraints for a period of time yet to be revealed by management. For now, management indicated that there will not be any potential penalties in the 30%-owned JV.

• Management has deferred to the maturity of the first tranche of US$260mil loan from May 2021 to November 2022, providing financial flexibility to the group, which continues to seek opportunities to dispose its OSV fleet.

• As the group has significantly improved core earnings since stabilising Armada Kraken’s operations, we view that the 26% discount to BV as unjustified.

Source: AmInvest Research - 26 Feb 2021