Results/Briefing

• Slightly Below: FY14 core PATAMI fell 15% YoY to RM366m, making up 93% and 91% of HLIB and consensus full-year estimates, respectively.

Deviations

• Mainly due to weaker T&I operation.

Dividends

• Declared dividend of 1.63 sen per share.

Highlights

• FY14 core PATAMI fell by 15% after adjusted for total noncash expenses of RM147m from: i) RM66m allowance for trade receivable (majority from customers in OSV); ii) RM32.5m impairment charge for investment in Dyna-Mac; and iii) RM48.5m T&I cost incurred for additional work scope with ongoing FPSO installation. To note, there are no impairment incurred for any FPSO projects despite investors’ concerns about deteriorating credit profile of some smaller clients.

• OSV fleet renewal programmes is ongoing with 3 Class B vessels disposed in 4Q14 with 5 vessels remained held for sale. Overall, group vessels utilization improved from 74% to 79% QoQ. In view of the low oil price and capex cut by E&P players, Bumi Armada has initiated cost reduction and planning to exit low profitability business such as oilfield division and dispose of low utilisation vessels in T&I segment.

• Risks of cancelling or scaling down existing FPSO projects is low as major clients remain committed to long term investment despite low oil price in near term.

• Total orderbook stood at RM37.2bn (RM24.5bn on firm and RM12.7bn on extensions) which include 50% of Madura contract.

• FSRU and FLNG segments provide new growth opportunity going forward. We understand the company has high chance to secure a FSU/FSRU project with 18 years contract duration in Europe. We have not captured any contribution from FSRU projects in our earning assumptions. This will be the wildcard for the company.

Risks

• Increased competition as new players enters the market.
• Execution risk, including oil spills and their clean-up costs.
• Plunge in crude oil price.

Forecasts

• FY15 earnings adjusted downward by 7% to reflect lower margin for T&I and OSV.

Valuation

• We maintain our BUY call with TP adjusted from RM1.68 to RM1.54 based on SOP valuation method following adjustment to the group net debt position and lower value from T&I and OSV segment post earnings cut.

Source: Hong Leong Investment Bank Research - 27 Feb 2015