- We maintain our HOLD recommendation on Bumi Armada with an unchanged fair value of RM0.90/share based on a discount of 40% on our sum-of parts of RM1.51/share. The discount reflects the weakness and uncertain outlook for the oil and gas sector – especially in the offshore support vessel (OSV) and Transport & Installation (T&I) fronts. Given the low oil price environment, the group’s current focus lies on cost efficiencies to ensure EBITDA-positive cashflows from its core divisions.

- We have largely maintained FY15F-FY17F earnings as the OSV and T&I segments are unlikely to register a turnaround in the near-term given the current slowdown in contract flows and excess global vessel supply amid capex cuts by oil majors.

- The group’s 9MFY15 core net profit of RM249mil (excluding one-off impairments of RM398mil for the OSV and T&I vessels Armada Hawk and Armada Condor vessels) came in within expectations, accounting for 80% of our FY15 forecast and 74% of consensus’s RM335mil. The group did not declare any interim dividend as expected.

- Bumi Armada’s 9MFY15 core net profit decreased 8% YoY mainly due to the sharp decline in charter and utilisation rates for the OSV fleet (from 74% in 3QFY14 to 53% in 3QFY15) and the T&I vessels Armada Hawk and Condor. The earnings decline was largely offset by the 55% increase in 9MFY15 FPSO EBIT contribution to RM330mil.

- The group’s 3QFY15 core net profit rose 32% QoQ to RM82mil (excluding a RM12mil impairment from mark-to-market losses on Dyna-Mac Holding shares and a staff retrenchment exercise) mainly due to the growing FPSO contribution.

- The FPSO segment continued to grow given the group’s locked-in contracts, with its 3MFY15 EBIT improving by 47% QoQ to RM146mil. The group saw higher contributions from the conversion progress of the Kraken, Eni 1506 and Madura FPSOs as well as the Malta floating gas project.

- This was partly offset by the group’s widening T&I losses, which rose to RM30mil from RM6mil, as the activity levels for the LukOil contract slowed down due to the shift to Phase 2 in the Caspian Sea. The OSV continues to register a loss, but at a reduced RM19mil in 3QFY15 from RM23mil in 2QFY15. This stemmed from a slight improvement in the vessel utilisation rate to 54% in 3QFY15 from 53% in 2QFY15.

- Meanwhile, foreign exchange gains have largely driven the group’s firm orderbook to increase to RM29bil from RM25.8bil, with optional extension of up to RM15.6bil (RM13.3bil previously). The group is actively looking for two new FPSO projects in Vietnam and Brazil, for which the award of a contract is expected in 1H2016.

- The group now trades at an undemanding FY16F PE of 13x vs 17x for the sector.

Source: AmeSecurities Research - 23 Nov 2015