- We maintain BUY on Bumi Armada with a lower SOP-based fair value of RM1.45/share (vs. an earlier RM1.55/share), which implies an FY15F PE of 21x.

- Bumi Armada incurred a net loss of RM53mil for 4QFY14, which brings earnings to RM219mil for the year. This was mainly due to a one-off impairment charge for its available-for-sale financial assets (i.e. its investment in Dyna-Mac Holdings) and goodwill amounting to a total of RM32.5mil. The group also recorded an allowance for trade receivables of RM66mil, related mainly to its OSV and transport & installation (T&I) segments.

- Stripping off these exceptional items, the group’ core net profit dipped by 26% YoY to RM317mil, which is below our estimate of RM397mil and consensus’ RM401mil. The group declared a final cash dividend of 1.63 sen/share.

- The short fall is mainly due to the cost of additional work scope of ~RM50mil in the T&I division for the FPSO installation in the C7 field in India. We understand that the group has submitted the variation orders (VO) for the additional work done and will likely receive compensation by 1QFY15.

- On top of the allowance for the trade receivables, the OSV segment was also impacted by lower demand for its older and lower BHP Class B vessels. The OSV fleet renewal programme is ongoing, having disposed of six Class B vessels, with another five earmarked for sale.

- We have cut our FY15F-16F earnings by 6-11%, mainly to account for lower EBIT margin assumptions for both the OSV and T&I segments.

- The management has indicated that the group will embark on cost optimisation measures to enhance its efficiency and productivity, which would include headcount reductions, divestment of certain low-yielding T&I assets and exit of the oilfield services segment.

- Meanwhile, the group’s firm order book of ~RM24.5bil (with extensions of up to RM13bil) is expected to support the group’s earnings prospects. Substantial earnings contributions from the Kraken and 15/06 FPSO will kick-in FY16 and FY17 upon the commencement of operations. The group is also close to securing an 18-year contract to provide a floating storage unit (FSU) for liquid gas this year in an EU country.

- Overall, we continue to like Bumi Armada for its earnings visibility, underpinned by the long-term nature of its FPSO contracts. The stock now trades at an FY15F PE of 17x, against its historical average of 29x.

Source: AmeSecurities