Results

• Improved profit - Bumi Armada’s 1Q17 net profit increased 16% YoY to RM48.1m despite revenue falling 6% YoY to RM404.2m.

• Higher QoQ earnings – The Group posted a net profit of RM48.1m compared to a net loss of RM249.2m (excluding impairment of RM1.15bn) in 4Q16. 1Q17 revenue almost quadrupled from RM106.2m in the previous quarter due to recognition of supplementary payments for the Kraken FPSO project in 4Q16.

• FPO revenue rose – Revenue from the Floating Production & Operation (FPO) business increased 11% YoY and 355% QoQ to RM239.7m following first oil and first gas from Armada Olombendo (Angola) and Armada LNG Mediterrana (Malta) respectively.

• OMS revenue continued to decline – Revenue from Offshore Marine Services (OMS) dropped 23% YoY and 18% QoQ to RM164.5m due to lower contribution from the LukOil project in the Caspian Sea and low utilisation rate from OSV at 44% (vs 48% in 4Q16) as 21 OSVs are cold stacked. The company managed to secure 6 short-term jobs in 1Q17.

• FPSOs progressing well – After Armada Olombendo and and Armada LNG Mediterrana’s first oil/gas, Armada Sterling III (Madura) has received first gas on board while Armada Kraken (North Sea) is under final commissioning in preparation for first oil.

• Strong orderbook – Orderbook declined to RM23.9bn (FPSO: RM22bn, OMS: RM1.9bn) from RM25.6bn in 4Q16 with another RM13.7bn 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 within expectation – 1Q17 earnings came withtin our expectation despite accounting for only 12.4% of our full year estimate. Quarterly revenue also came within forecast after making up 14.5% of our full year forecast as first quarter is seasonally low due to monsoon.

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

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 98/2 (India), Eni Zaba Zaba (Nigeria), Hess (Ghana) and Petrobras Buzious 5 (Brazil).

Source: JF Apex Securities Research - 1 Jun 2017