Results /Briefing

Inline: 9M13 PATAMI increased 24% yoy to RM343m, making up 73% and 69% of HLIB and consensus full-year estimates, respectively.

Deviations

None.

Dividends

None.

Highlights

9M13 PATAMI increased 24% yoy due to higher FPSO operations and maintenance revenue, share of profit from C7 FPSO project, additional OSV fleet and higher contribution from T&I – LukOil contract.

QoQ, EBIT margin fell from 28% to 27% mainly due to higher mix of lower margin products (contribution from LukOil EPIC contract in Caspian).

Despite lower vessel utilisation (84% vs. 87% in 3Q12), revenue from OSV segment increased 14% QoQ due to new tonnage delivered (Armada Tuah 300 and Armada Tuah 303) and improved uptime recorded by the larger vessels. The company plans to grow current OSV fleet from 40+ to 80+ vessels in 5 years.

Recall that the company has just received a letter of interim agreement from EnQuest on Kraken FPSO project. We understand that the US$1bn Kraken FPSO is twice the size of normal FPSO Bumi Armada handled, we estimate it will contribute at least RM120m net profit to the bottomline (which was already factored in our earnings assumptions).

To note, we see upside risk to our forecasts from FY13 onwards if the company manages to secure Madura (US$450m capex) projects (still on the process of reviewing but the timing of result announcement is uncertain at current moment after recent Indonesia graft scandal).

The company is also looking at several projects in West Africa at average US$1bn capex with one of the project in Angola to be announced in 1H14. Overall, the company is bidding for 12 projects globally.

Funding is not an issue as it recently raised US$1.5bn under a multi-currency Euro medium-term note (EMTN) programme. Balance sheet remains manageable with gearing ratio expected to rise from 0.8x to 1.4x versus historical high at 4x in 2009.

Risks

• Increased competition as new players enters the market.
• Execution risk, including oil spills and their clean-up costs.
• Unusual high portion of vessels dry docking or under repair.

Forecasts

Unchanged pending more contract detail on the Kraken project from company.

Valuation

Despite our current TP of RM4.30 (based on unchanged 20x FY14 EPS of 21.5 sen/share) only provides potential upside of 7%, we do see upside risk to our forecasts if the company manage to secure any additional FPSO project in FY14. We continue to like the company’s prudent approach in tendering projects and outstanding execution capability. Hence, we maintain our BUY call.

Source: Hong Leong Investment Bank Research - 21 Nov 2013