Investment Highlights

• We maintain BUY on Bumi Armada with an unchanged sumof-parts (SOP) based fair value of RM0.76/share, which reflects a neutral ESG rating of 3 stars. This also implies an FY22F PE of 6x, half of its 5-year average of 12x.

• Our FY21F–FY23F earnings have been fine-tuned as the group’s 9MFY21 core net profit (excluding net vessel impairments of RM110mil) of RM566mil came in within our expectation but above consensus, accounting for 82% of our FY21F net profit and 96% of street’s.

• We highlight that our FY21F–FY23F earnings are 17%–27% above consensus. As a comparison, 9MFY21 accounted for 51%–65% of FY19–FY20 core net profit.

• For 9MFY21, the group’s revenue was flat YoY but core net profit surged 81% YoY from higher Armada Kraken contributions and offshore marine services (OMS) together with lower finance charges and depreciation stemming from the sharp reduction of vessels to only 10 currently from 29 in 3QFY20. This was also supported by a sharp turnaround in JV contributions in India (Sterling I and II) and Indonesia (Sterling IIl).

• Bumi Armada’s 3QFY21 core net profit fell 30% QoQ to RM160mil due to a lumpy 35% drop in JV contribution together with reversal of deferred tax provision and positive minority charges from variation orders at operation and maintenance operations in 2QFY21.

• The 3QFY21 revenue of the main floating production & operation (FPO) segment slipped 11% QoQ to RM472mil due to an unplanned shutdown at one of 2 trains at Armada Kraken. However, this was partly offset by lower lumpy operating costs, which led to a mild 2% QoQ decline in 3QFY21 operating profit to RM337mil.

• OMS’ 3QFY21 operating profit surged 3.1x QoQ to RM22mil from lower costs as 4 vessels were sold, which led to the segment’s revenue decreasing by 11% QoQ to RM74mil with utilisation rates sliding slightly to 69% from 70%.

• Meanwhile, the group’s firm order book contracted by 2% QoQ to RM14.6bil from revenue depletion. Together with optional extensions worth RM9.6bil, this translates to 9.6x FY22F revenue.

• Besides existing projects that continue to support its cash flows, Bumi Armada plans to further pare down its debt and fully monetise its OMS assets, in which 4 of the 10 remaining vessels are already been earmarked for disposal.

• Valuation-wise, we reiterate our view that Bumi Armada’s FY22F PE of 4x is unjustified vs. FBMKLCI’s 17x as the group has stabilised its core earnings and balance sheet health with the optimisation of Armada Kraken’s operations since 4QFY20.

Source: AmInvest Research - 19 Nov 2021