Investment Highlights

• We maintain BUY on Bumi Armada with an unchanged sum-of parts (SOP) based fair value of RM0.86/share. Our fair  value also reflects a neutral ESG rating of 3 stars.

• Our forecasts are unchanged as Bumi Armada's 1QFY23 core net profit (CNP) of RM206mil came in largely within  expectations, accounting for 24%-25% of our FY23F earnings  and streets’.

• YoY, the group’s 1QFY23 revenue slightly rose by 3% to  RM544mil mainly due to increased contributions from  engineering services to one of its jointly owned floating  production storage and offloading (FPSO) units. In addition  to the better revenue, 1QFY23 CNP grew by 12% YoY  underpinned by higher profit margin and share of results of  associates & joint ventures, despite being marginally  impacted by increased finance costs.

• QoQ, 4QFY22 revenue slid by 10% mainly due to lower vessel  availability for Armada Kraken FPSO and reduced variation  orders for operation & maintenance activities under Armada  Olombendo FPSO. This was also partly mitigated by higher  revenue from engineering services in the current quarter.

• As a result of the decreased revenue, 1QFY23 CNP declined  by a similar 10% QoQ, which was partially offset by a higher  profit margin together with lower depreciation charges and  finance costs.

• Meanwhile, the group’s 30%-owned Armada Sterling V was  successfully hooked up with the Submerged Turret  Production buoy mooring system since December 2022 and is now ready to commence commissioning and achieve first  oil for Oil and Natural Gas Corporation (ONGC). 

• Meanwhile, the group's firm order book decreased by 5%  QoQ to RM11.1bil at the end of 1QFY23 mainly due to  progressive recognition of charter contract value. Combined  with optional extensions worth RM9.3bil, this translates to a  comfortable 8.5x of FY22 revenue.

• The group also progressed further in its ongoing  deleveraging exercise by repaying RM490mil of debt in  1QFY23, bringing net gearing ratio to 0.82x (from 0.92x in  4QFY22) – the lowest level since 3QFY15. The group also  fully repaid FPSO Kraken’s project finance debt 3 months  ahead of the repayment schedule. 

• We expect the balance sheet to improve further in 2QFY23 as  the group pares down debt with the proceeds from the  recently completed disposal of the idle Claire FPSO and  remaining single offshore support vessel (OSV) unit.  

• With a leaner balance sheet currently, the group’s near-term outlook remains bright as it is now coming back to  the bidding market with a greater focus on gas related FPSO projects. We understand that management does  not rule out the possibility of partnering with other players in bidding for projects and is targeting to secure at  least one sizeable project (capex of US$1bil or above) or multiple smaller projects at once.

• Meanwhile, an immediate re-rating factor would be the potential award of engineering, procurement, construction, and commissioning contract with a potential project value of at least US$1bil from TotalEnergies’  Cameia project. In addition, the group is also actively bidding for other FPSO projects as well as some subsea  pipelay jobs in the Caspian Sea.

• Valuation-wise, we see more potential upside in Bumi Armada in view of its FY23F PE of 4.5x vs. the FBM KLCI's  13x. This is underpinned by sustainable core earnings with Armada Kraken's improved vessel availability

Source: AmInvest Research - 26 May 2023