Decent Results; Improved Kraken Uptime

Bumi Armada’s (BAB) 1Q19 results were in line with expectations. FPSO Kraken saw higher operational uptime, and more importantly, the absence of asset impairments that had been dragging down sentiments. Maintain BUY with an unchanged TP at RM0.31.

No Negative Surprises in 1Q19

BAB’s 1Q19 core net profit came in at RM75m (-22% qoq, -18% yoy), which represented 29% of our and 31% of consensus forecasts. The weaker earnings were due to an 18% decrease in revenue following FPSO TGT1’s lower extension rates. Overall, 1Q19 results were in line with expectations as we expect softer earnings in the subsequent quarters on progressively higher finance costs post US$660m refinanced term loan.

Higher Kraken Uptime Qoq Lifted EBITDA Margin by 10ppts

1Q19 revenue fell 15% qoq, impacted by lower OMS contribution following the completion of the LukOil project in the Caspian Sea, but was partly mitigated by higher FPSO Kraken uptime. Core net profit declined 22% qoq mainly due to higher depreciation changes as FPSO Kraken was reclassified as an operating lease coupled with lower associate contribution due to a high base in 4Q18, as a result of reversal of provisions.

Kraken Rectification Work Continues, No Progress on Loan Front

FPSO Kraken saw a high operational uptime in its oil production, however, the asset is still facing issues for its water injection facility due to a substandard water filtration unit which is unable to efficiently filter sea water. We understand that this was due to earlier design issues and is currently being rectified, although provided for in the previous quarters. Meanwhile, talks with Kraken’s creditors in relation to the RM1.7bn loan, now classified under current liabilities, are ongoing. No guidance as to when the talks will be concluded.

Maintain BUY

We maintain our BUY call with an unchanged SOTP-based target price of RM0.31. We continue to take a view that a rights issue would not be undertaken, but instead, a divestment of existing assets or potentially utilizing FPSO Claire’s legal claims, if successful. The legal hearing related to FPSO Claire is awaiting judgement which will likely be known by 4Q19. If ruled in BAB’s favour, we believe the US$280m could provide the financial strength to finance its 30% stake, which works out to be US$120m (RM500m) based on US$1.3bn capex and 70:30 project funding assumptions.

Source: Affin Hwang Research - 28 May 2019