CGS-CIMB Research

Bumi Armada - Share Price Yet to Reflect Operational Recovery

Publish date: Thu, 16 Nov 2023, 11:13 AM
CGS-CIMB Research
  • 9M23 core net profit of RM414m was 67% of our previous FY23F forecast, slightly below expectations due to RM23m in forex losses during 3Q23.
  • Core FPSO EBITDA in 3Q23 recovered to just 4% shy of 1Q23 levels (prior to the Kraken issues in 2Q23), setting the stage for another strong 4Q23F.
  • Reiterate Add with a slightly lower SOP-based TP of 73 sen, on the back of 2-4% core EPS forecast reductions for FY23-25F.

Strong FPSO Recovery in 3Q23, as the Kraken Went Back to Normal

3Q23 core net profit of RM159m was almost triple the immediately-preceding quarter, as the 2Q23 was negatively impacted by the unexpected FPSO Kraken outage from 29 May when production fell to zero, before being progressively restored to 60% from 11 Jun, 90% from 20 Jul, and finally full restoration from 7 Aug 2023. Core FPSO EBITDA in 3Q23 recovered to just 4% shy of 1Q23 levels, given that the FPSO Kraken operated at an average utilisation of 90% in 3Q23, compared to 100% in 1Q23. Despite the strong rebound in FPSO earnings, BAB’s 3Q23 core net profit was still 20% lower than 1Q23, due to 1) wider forex losses in 3Q23 (from intercompany balances denominated in US$); 2) the absence of technical management fees in 3Q23 that had been charged in 1Q23 against the JV that owns the FPSO Armada Sterling 5 (deployed in the 98/2 field, offshore India); and 3) losses in 3Q23 from the Technology, Engineering and Projects (TEP) division as no further engineering design work had been performed since 2Q23, as compared to profits in 1Q23 when the division was performing design work for an oil company’s proposed FPSO Cameia project in Angola. Against 3Q22, the 3Q23 core net profit declined 29% yoy, as 1) BAB’s two Caspian Sea pipelay vessels continued to work last year until they became idle sometime during 4Q22; and 2) because the TEP division booked-in healthy revenues and profits in 3Q22 from the FPSO Cameia design work.

Potential Extension of TGT-1 Charter May Add 15 Sen to Our SOP

The outlook for 4Q23F appears brighter, as the FPSO Kraken will most likely achieve 100% utilisation compared to the average of 90% in 3Q23. We have pencilled-in a core net profit forecast of RM177m in 4Q23F, up from 3Q23’s RM159m, albeit still lower than 1Q23’s RM198m for the same reasons explained above. We reduce slightly our target price to 73 sen, due to 2-4% core EPS forecast reductions for FY23-25F, and a widening of the net derivative liability position due to the depreciation of the ringgit vs. US$. Potential re-rating catalysts include sequentially stronger 4Q23F results, the imminent start-up of the FPSO Armada Sterling 5 from late-2023F, potential new pipelay work in the Caspian Sea given the active tender scene, and a potential extension of the FPSO Armada TGT-1 charter from Nov 2024F to Aug 2031F; the latter could add a further 15 sen to our SOP and contribute to an 11% uplift to our FY25F core net profit forecast, in our estimate. Downside risks include BAB’s inability to refinance its RM1.5bn sukuk borrowings that will be maturing on 4 Sep 2024F, and longer-term growth plans that may require equity funding, leading to a potential rights issue, in our view.

Source: CGS-CIMB Research - 16 Nov 2023

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