Investment Highlights

• We maintain BUY on Bumi Armada with an unchanged sumof-parts (SOP) based fair value of RM0.83/share, which also reflects a neutral ESG rating of 3 stars and implies an FY22F PE of 7.4x, less than half of the FBM KLCI.

• We raise our earnings by 8% for FY22F and 7% for FY23F to account for slightly higher margins on the floating production and operation (FPO) division as well as lower depreciation expenses and finance costs.

• The group's 1QFY22 core net profit (CNP) of RM185.8mil beat expectations, accounting for 31% of our earlier FY22F net profit and 30% of street's estimates.

• 1QFY22 CNP came in higher by 14% YoY at RM185.8mil as a result of lower operating expenses, lower depreciation expenses and lower finance costs. Nevertheless, it also recorded a lower share of results of JVs and associates dragged by impairment losses.

• On a QoQ comparison, Bumi Armada's 1QFY22 CNP rose substantially by 57%, mainly anchored by higher revenue from Armada Kraken, lower depreciation expenses and finance costs coupled with the absence of the RM28.5mil impairment losses on vessels recognised in 4QFY22.

• Turnover came in moderately higher by 3.1% QoQ on the back of Armada Kraken FPSO’s higher vessel availability.

• Still, group revenue was down 6% YoY due to lower contribution from offshore support vessel (OSV) operations amid reduced fleet size. It is worth highlighting that the group remains keen on disposing of the entire OSV fleet (remaining 3 units as of end-1QFY22) in the upcoming quarters when management plans to further pare down its debt using proceeds from the disposal.

• We also gather that the construction of ONGC’s KG-DWN 98/2 FPSO, in which the group has a 30% effective equity stake, has reached 87% completion as of end-April 2022, and is on track to be completed by the end of 2022. Recall that a force majeure notice was issued by the JV partners to ONGC during the Covid-19 pandemic restrictions at Sembcorp Marine’s yard in Singapore.

• Meanwhile, the group's firm order book slid by 3% QoQ to RM13.2bil from revenue depletion. Combined with optional extensions worth RM9bil, this translates to a comfortable 10.2x FY22F revenue.

• Valuation-wise, we see more potential upside in Bumi Armada in view of its FY22F PE of 7.4x vs. the FBM KLCI's 16x. We also foresee steady core earnings in the near future following the normalisation of Armada Kraken's operations.

Source: AmInvest Research - 26 May 2022