BAB’s FY17 core net profit of RM305m was up over 6-fold yoy, and in line with our estimate. The main driver of the exponential growth was: (i) maiden contribution from FPSO Olombendo (at an average 80-90% partial rate) and Kraken (which started from 2H onwards at partial rate), (ii) Malta FSU contribution, and (iii) one-off revenue recognised for the LukOil project. We reaffirm our BUY call with a higher SOTPbased TP of RM1.00. One of our top sector picks.

2017 Results Within Expectations

4Q17 net profit came in at RM63.8m (-48% qoq; +105% yoy). After excluding the one-offs which consist of a RM16.8m disposal gain on OSVs, RM3.6m doubtful debt allowance, RM0.9m forex loss, and other one offs, core net profit was lower at RM48.9m (-27% qoq; +133% yoy). Cumulatively, FY17 core net profit of RM305m accounted for 97% of both our and consensus estimates. In tandem with the revenue increase (as reason mentioned above), EBITDA margin also expanded 12ppts yoy to 52% in FY17 which led to core net profit increasing by over 6-fold yoy.

QoQ Result Analysis

Sequentially, 4Q17 revenue inched up by a minor 3% as the better FPO performance (driven by contribution from FPSO Olombendo and Kraken) partly mitigated the weaker OMS segment (due to lower work activities from the LukOil project). Notwithstanding, FPO showed a 6.4% qoq operating profit decline due to a forex loss, but OMS operating profit increased 5-fold due to a recognised disposal gain and benefited from cost savings in relation to its crew cost.

Progress Update on FPSOs

FPSO Olombendo continued to recognise 90% of the full charter in 4Q (unchanged from 3Q), and remains on track to be delivered by 1Q18. FPSO Kraken’s production level has increased from the November 2017 level of 23,000bpd to 50,000bpd, and has recognised 70–80% of the full charter rate in 4Q based on the interim agreement with EnQuest. Final acceptance is targeted by 2Q18. Management highlighted that its focus is on delivering the two remaining FPSOs and potentially new FPSO contracts awarded possibly by earliest end 2018.

Source: Affin Hwang Research - 27 Feb 2018