Stripping out 1) RM30m gain on the sale of FPSO Armada Perdana and 5 OSVs, 2) RM36m on the disposal of two OSV JVs in Nigeria and 3) other exceptional items, Bumi Armada reported a strong 3QFY19 core net profit of RM88.9m, boosting its 9MFY19 core net profit to RM211.9m (-3.1% YTD). The performance was due to the i) stability in Armada Kraken’s uptime performance, 2) turnaround in the OMS segment, and 3) stronger JV contributions from FPSO Armada Sterling I and II due to tax exemptions. The numbers exceeded both our and consensus full-year expectations by 8% and 9% respectively. We see BAB registering stable earnings moving forward, with steadier performances from Armada Kraken coupled with interest cost savings of c.RM20m/quarter arising from the disposal of Armada Perdana, and further improvement in OSV utilisation rates. We revise FY19-21 earnings higher by an average of 11.2% as a consequence, with our TP also adjusted higher to RM0.53 (RM0.22 previously) as we lower the discount rate assumptions in our DCF-based computations given steadier operational prospects. Our Neutral rating is retained.

• Results highlight. Despite lower YoY revenue by 15.6% which was attributed to lower recognition from the OMS segment as a result of the completion of Lukoil project in December last year, core net profit was nonetheless flat due to stronger JV profit from FPSO Armada Sterling I and II on tax exemption benefits as well as the profit turnaround in the OMS segment thanks to a higher fleet utilization of 58% in the 3Q from 39% in 1QFY19. While we expect more stable performances from the FPO segment, we also see outlook for the OMS segment getting better with more vessels likely to be deployed soon. Disposal of 9 OSVs this year (incl. 5 in 3QFY19) helps with lowering idle costs. As of 9MFY19, the Group’s firm order book stands at RM18.5bn with RM10bn available for extensions.

• Stable performance from Armada Kraken. Production efficiency at Kraken has been over 90% in the last few months since it completed pipework repairs in August. Average gross production in the 10-months up to October was 34,286 bbls/day (+13.1% from 2018’s average), in line with guidance of between 30k-35k bbls/day for this year. We see further upsides in Armada Kraken given its stable performance for the first 3 quarters of this year, some of which may come from the reclassification of its RM1.5bn debt and the potential write-back of FY18 impairments.

Source: PublicInvest Research - 25 Nov 2019