Bumi Armada’s 1Q22 core net profit of RM187.4m (+42% QoQ, +27% YoY) came in within expectations at 26% of our full-year forecasts and 30% of consensus full-year estimates. We highlight that there were no major operational hurdles throughout the quarter 1Q22. We see vast improvement in its balance sheet, cash flow s and operational efficiency with the following highlights: (i) lower net debt of RM5.7bn as at end-1Q22 (from RM6.1bn as at end-4Q21); and (ii) net gearing has declined for the 8th consecutive quarter to 1.3x as at end-1Q22 from a peak of 2.9x in 1Q20. We maintain our BUY rating with an unchanged TP of RM0.84 based on 7x of FY22F earnings, which is in-line with its 5-year historical mean forward P/E. Armada is our top pick for the O&G sector.

Within expectations. Armada registered core net profit of RM187.4m (+42% QoQ, +27% YoY) in 1Q22 – adjusted predominantly for: (i) net forex loss of RM3.3m and (ii) net writeback for impairment losses of trade receivables of RM1.7m. 1Q22 results came in within expectations at 26% of our full -year forecasts and 30% of consensus full-year estimates.

QoQ. Core net profit was up 42% QoQ primarily due to: (i) improved vessel availability for Armada Kraken FPSO; and (ii) 8% reduction in interest expense. All-in, we understand that there were no major operational hurdles throughout the quarter.

YoY. Core net profit was up 27% YoY primarily due to: (i) lower depreciation cost; (ii) 16% reduction in interest expense; and (iii) 78% lower tax expense. Again, there were no major operational hurdles throughout the quarter.

Outlook. We see vast improvement in its balance sheet, cash flows and operational efficiency with the following highlights: (i) lower net debt of RM5.7bn as at end-1Q22 (from RM6.1bn as at end-4Q21); and (ii) net gearing has declined for the 8th

consecutive quarter to 1.3x as at end-1Q22 from a peak of 2.9x in 1Q20. Refer to Figures 1 to 2 for more details. The remaining balance of Tranche 1 under the USD660m Term Loan was USD27m, with a maturity in November 2022 We do not foresee any major hurdles in meeting its repayment obligations for Tranche 1. We believe that Armada’s debt management risk is gradually improving over the coming quarters. Armada is looking to dispose 3 more of its remaining OSV vessels in future as the group aims to exit the OSV business entirely.

Forecast. Unchanged.

Maintain BUY, unchanged TP of RM0.84. We maintain our BUY rating with an unchanged TP of RM0.84 based on 7x of FY22f earnings, which is in-line with its 5- year historical mean forward P/E. At about only 3.6x FY22f earnings currently, we think that Armada is highly compelling given its foothold in the FPSO business which provides steady recurring income, coupled with speedy enhancement in its debt profile. The recent weakness in Armada’s share price accentuates an attractive bargain hunting opportunity. Armada is our top pick for the O&G sector.

Source: Hong Leong Investment Bank Research - 26 May 2022