Bumi Armada (BAB) recorded core PATAMI of RM203m in 1QFY23, growing by 14.4% on a YoY basis due to higher revenue from its engineering services. On QoQ basis, its core PATAMI was lower by 8.4% however, due to lower vessel availability for Armada Kraken Floating Production Storage Offloading (FPSO), the absence of variation order for Armada Olombendo FPSO in 1QFY23, and tax credit in 4QFY22. Overall, its core PATAMI is in line with our and consensus estimates at 23.7% and 25% of full year numbers respectively. We are sanguine on the Group’s prospects as it also continues to pare down its net gearing ratio to 0.82 by expediting debt repayment and disposal of assets. This will strengthen its financial position for upcoming FPSO contracts. We make no changes to our estimates. Our

Outperform call is retained with sum-of-parts derived TP unchanged at RM0.75.

• Stronger balance sheet. The Group is expediting its de-leveraging efforts, having fully repaid Kraken’s project finance debt 3 months ahead of schedule. Its net gearing ratio is now at 0.82x from 0.92x in 4QFY22. This is before the sale of Armada Claire for USD20m, which will be booked in 2QFY23 and further pare down its net gearing ratio to 0.80x. This suggests greater financial flexibility in securing major FPSO contracts in the future.

• Pending commissioning of FPSO Sterling V. FPSO Sterling V has arrived at the Kakinada 98/2 field since December 2022. However, after 5 months, the FPSO still remains on standby mode for the first oil production. The Group is still in discussion with its client, ONGC, and is optimistic that the setting of the commissioning date will be resolved soon. This will be a significant milestone for the Group in starting to recognise contributions from FPSO chartering.

• Outlook. Based on media reports, one of its potential client, TotalEnergies has inked an MOU with Sonangol and the state regulator for the development of FPSO in Cameia and Golfinho fields. Despite recent negative news, the Group believe the FPSO market remains robust especially on Floating Liquefied Natural Gas (FLNG) with gas as a transitional energy source. In meantime, it is actively submitting proposals for selective FPSO tenders. On the contracting strategy, the Group prefers to have one or two FPSO contracts with a total capital expenditure of USD1bn. It also prefers to have partnerships for the contract as part of its risk management strategy.

Source: PublicInvest Research - 26 May 2023