Investment Highlights

• We maintain BUY on Bumi Armada with a higher sum-of-parts (SOP) based fair value of RM0.86/share (from RM0.84/share previously) upon rolling forward the transport & installation segment’s valuation base year to FY23F together with model assumption adjustments. Our fair value also reflects a neutral ESG rating of 3 stars.

• Bumi Armada's FY22 core net profit (CNP) of RM879mil (after stripping off RM68mil net impairment losses, RM74mil net fair value losses of vessels as well as an RM18mil unrealised forex losses) beat expectations, coming in 12% above our forecast and 14% of street's.

• Subsequently, we raise FY23F/FY24F earnings by 4%/3% after pencilling in higher revenue growth from subsea construction and preliminary front-end engineering and design (Pre-FEED) operations coupled with lower finance costs.

• YoY, the group’s FY22 revenue grew by 11% to RM2.4bil mainly due to higher contributions from subsea construction works in the Caspian Sea and improved floating production storage and offloading (FPSO) Armada Kraken’s improved vessel availability. However, FY22 CNP increased by a larger 63% YoY, buoyed by lower depreciation charges, finance costs and tax expenses, which partially mitigated a lower share of joint ventures (JVs) and associates’ results.

• QoQ, 4QFY22 revenue dipped by 7% to RM605mil as a result of lower progress of subsea construction works in the Caspian Sea, despite a slightly better performance from FPSO Armada Olombendo.

• Notwithstanding the lower revenue, 4QFY22 CNP rose by 6% QoQ, underpinned by a better share of results of JVs and associates and a positive tax line (due to one-off reversal of accrued withholding tax expense for prior years). Note that the share of JVs and associates’ results surged by 1.9x QoQ to RM40mil due to the absence of fair value losses in jointlyowned FPSO incurred back in 3QFY22.

• Meanwhile, its 30%-owned Armada Sterling V has arrived at the Kakinada 98/2 field and successfully hooked up with the buoy mooring system since December 2022. The vessel is now awaiting final acceptance and will subsequently achieve first oil in 2QFY23. This paves the path for maiden earnings contributions from the vessel in FY23.

• Meanwhile, the group's firm order book decreased by 10% QoQ to RM11.7bil at the end of 4QFY22 primarily due to progressive recognition of charter contract value and unfavourable forex movements. Combined with optional extensions worth RM9.2bil, this translates to a comfortable 8.7x of FY22 revenue.

• Bumi Armada’s short-to-medium term outlook remains promising as the group could bag the engineering procurement construction and commissioning contract with a potential project value of at least US$1bil for TotalEnergies’ Cameia project over the coming months. In addition, the group is also actively bidding for other FPSO projects as well as some subsea pipelay jobs in the Caspian Sea.

• The group’s balance sheet is also gradually improving as it repaid US$398mil of debt in FY22, bringing its net gearing ratio to 91%, its lowest level since FY15. We expect the group to further strengthen its financial position by utilising disposal proceeds of the remaining single OSV and the idle FPSO Claire to pare down debt in FY23.

• Valuation-wise, we see more potential upside in Bumi Armada in view of its FY23F PE of 4x vs. the FBM KLCI's 15x. This is underpinned by sustainable core earnings with Armada Kraken's improved vessel availability.

Source: AmInvest Research - 27 Feb 2023