Investment Highlights

• We maintain BUY on Bumi Armada with an adjusted sum-of parts (SOP) derived fair value (FV) of RM0.71/share (from RM0.68 previously) . This implies a FY24F PE o 4.9x, below its 3-year average of 7.5x. The FV also reflects ou neutral ESG rating of 3-star .

• Our revised FV is to account for 5%-10% increase in FY24F FY26F earnings from a higher daily operating rate for FPSO Armada Olombendo, which saw a +3% revision, according to our estimates. Recall that the charter contract allows fo annual revisions of the daily operating rate.

• Excluding unrealised forex losses and reversal of impairmen on trade receivables, the group’s 1QFY24 core net profi (CNP) of RM250mil was largely within our and street’s earnings forecast.

• YoY, the group’s 1QFY24 revenue grew by 17%, driven primarily by (a) FPSO Armada Olombendo which saw finalisation of operating fee escalation, and (b) higher vesse availability from FPSO Armada Kraken.

• 1QFY CNP rose by a larger 22% YoY due to the stronge topline which offset start-up costs from FPSO Armada Sterling V and lower finance costs.

• QoQ, the groups 1QFY24 CNP rose by a strong 37%, despite a flattish topline, as operating profit returned to black from the reversal of accrued costs and closure of the OSV division in the previous quarter. Moreover, the group also recognised lower losses from associates for the 98/2 FPSO in India.

• Notable highlights from the analyst briefing:
  
  ➢ The group remains confident over the extension o contracts for FPSO Armada TGT 1 due to the client’ continued well exploration activities (2 for now) which wil involve a tieback option.
  
  ➢ The group expects FPSO Armada Sterling V to achieve fina acceptance in end-2QFY24-early 3QFY24. The vessel is already operating as the field had commenced first oil.

• We continue to like Bumi Armada due to the bullish FPSO subsector prospects amid limited global operators with adequate financial and technical capabilities. We believe 2024 will be an execution year for the group as management works towards ensuring steady operational performance at 95% 100% and final acceptance for Armada Sterling V Additionally, we believe the near-term outlook for subsea pipelaying jobs in the Caspian Sea remains strong Successful progress on the Akia production sharing contrac and new charter wins will be further rating catalysts for Bum Armada.

• Valuation-wise, we see potential upside in Bumi Armada in view that it is trading at undemanding FY24F PE of 3.9x vs. the FBM KLCI's 15x. We see a sequential improvement in the group’s sustainable core earnings and an improving balance sheet.

Source: AmInvest Research - 31 May 2024