BAB reported a 2Q17 revenue of RM694.4m (+71.8% qoq, +72.4% yoy) and headline profit of RM116.6m (+142.3% qoq, +122.5% yoy). After adjusting for the one-offs (big-ticket items consist mainly of RM14.6m forex loss, RM8.2m in derivative gains, RM5.8m impairment of AFS and RM5.4m in vessels disposal gains), core net profit came in at RM123.6m (+87.8% qoq, +101.2% yoy). Even though this represents 60% of our full-year forecast, it is within our expectations as BAB had booked a one-off claim from a FPSO client in 1Q17 and another for its LukOil project in 2Q17, the respective sums of which were undisclosed. In view of the satisfactory results, we maintain our earnings forecasts. Maintain BUY with an unchanged SOTP-based TP of RM0.95.

Things Are Coming Along Well

Cumulative 1H17 revenue increased 31.8% yoy to RM1.1bn, resulting from maiden contribution from FPSO Olombendo and FSU Malta which drove the FPSO segment revenue up by 55.1%. The OMS segment also posted a 13% growth driven by one-off revenue recognised on work completed in the LukOil project, from the signing of a supplementary agreement. EBITDA margin which rose 13.7ppts yoy also helped lift the 1H17 core net profit to RM189.4m (+92.1% yoy).

Sequential Improvement

Sequentially, 2Q17 registered solid momentum with revenue rising 71.8% as a result of the full quarter contribution from FPSO Olombendo and FSU Malta coupled with one-off revenue recognised for the LukOil project. Core net profit increased 87.8% qoq to RM123.6m, supported by a better EBITDA margin (+6.9ppts) that was partly offset by higher interest expenses (+70.7%) and a lower associate contribution (-80.9%). The lower associate contribution was due to a one-off claim by ONGC in 1Q17, which was not disclosed, and a lower conversion profit for FPSO Madura.

Maintain BUY With An Unchanged 12-month TP of RM0.95

We maintain our BUY rating with an unchanged SOTP-based target price of RM0.95. In our view, most of the negative developments surrounding the company have lifted (more details on Page 2). As such, we see the current share price as representing a good buying opportunity, offering a potential upside of 27%.

Source: Affin Hwang Research - 28 Aug 2017