Results

• Lower profit - Bumi Armada posted a reported net loss of RM1.3bn in 4Q16, as compared to a net loss of RM97m in the previous quarter and a net loss of RM85m in 4Q15.

• Kitchen sinking - The deficit was mainly due to non-cash impairment of RM1.15bn following re-evaluation of its Offshore Support Vessels (OSV) assets and net allowance for doubtful debts of RM15.5m.

• Core earnings in the red - Excluding the exceptional items, Bumi Armada posted a core net loss of RM134.5m in 4Q16 (vs normalised profit of RM142m in 4Q15 and normalised loss of RM12.9m in 3Q16).

• Slower 2016 – For the full year, Bumi Armada posted reported net loss of RM1.89bn and normalised net loss of RM52.6m (vs FY15: reported net loss RM234.6m, normalised net profit RM356.4m) while revenue declined 35% YoY to RM1.42bn.

• FPSO revenue plunged – Quarterly revenue declined 65% YoY and 46% QoQ to RM205.5m mainly due to lower contribution from the FPSO segment which saw revenue declined 99% YoY and 96% QoQ to RM5.2m amid lower conversion activities after completing four FPSO projects.

• OMS revenue declined too – Similarly, revenue from Offshore Marine Services (OMS) dropped 5% YoY and 23% QoQ to RM200.3m due to lower contribution from the LukOil project in the Caspian Sea and low utilisation rate from OSV at 48% (vs 55% in 3Q16) as 19 OSVs are cold stacked.

• FPSOs progressing well – The 4 completed FPSOs will start contributing to earnings as the Armada Olombendo (Angola) achieved first oil, Karapan Armada Sterling III (Madura) and Armada Kraken (North Sea) approaching first oil and Armada LNG Mediterrana (Malta) being hired.

• Strong orderbook – After securing 3 new OMS contracts in 4Q16, orderbook inched up to RM25.6bn (FPSO: RM23.5bn, OMS: RM2.1bn) from RM24.1bn in 3Q16 with another RM12.9bn worth of potential extension. This will sustain the group’s earnings for the next few years with FPSO contracts ranging from 4 to 12 years.

Earnings Outlook/Revision

• Results below expectation – FY16 normalised net loss of RM52.6m came below our expectation of our full year net profit estimate of RM163m. Twelve months’ revenue came within forecast after making up 93.4% of our full year forecast

• Forecast maintained – We are keeping our forecasts for FY17 and FY18 as the newly completed FPSOs will boost FY17 earnings significantly.

Valuation & Recommendation

• Maintain Buy call with an unchanged target price of RM0.91 with FY17 EPS pegged to a target PER of 15x. We think the premium PE valuation is warranted given its huge orderbook and long term prospects in FPSO which could keep the company busy for the next few years.

• Going forward, Bumi Armada is eyeing several new FPSO jobs, namely ONGC Kakinada (India), Eni Zaba Zaba (Nigeria), Hess (Ghana) and Petrobras Sepia (Brazil).

Source: JF Apex Securities Research - 1 Mar 2017