Results

• Flat profit - Bumi Armada posted a net profit of RM48.4m in 1Q18 against RM48.1 in 1Q17 following higher interest cost and lower profit from joint ventures. Revenue jumped 49% YoY to RM600.3m due to higher contribution from Floating Production & Operation (FPO) while revenue from Offshore Marine Services (OMS) was lower.

• FPO leading growth – 1Q18 revenue from FPO surged 92% YoY to RM460.3m due to increased revenue from Armada Olombendo FPSO and Armada Kraken FPSO.

• Lower OSV utilisation – Quarterly revenue from OMS declined 15% YoY to RM140m due to lower contribution from the LukOil project in the Caspian Sea. Offshore support vessel (OSV) utilisation rate was lower at 39% (vs 46% in 4Q17).

• Lower QoQ – 1Q18 net profit declined 24% QoQ due to decline in share of profit from joint ventures (-23% QoQ to RM8.9m), lower revenue from OMS (-33% QoQ) and slightly higher revenue from FPO (+2% QoQ).

• FPOs progressing well – Management updated that Armada Olombendo (Angola) achieved Production Readiness Notification two weeks ago, while Armada Kraken (North Sea) is moving towards final acceptance by 2Q18 after completing its commissioning. Discussions for contraction extension for Armada TGT1 is being finalised while management is reviewing legal options on Armada Perdana (Nigeria) after its client abandoned the field.

• Strong orderbook – Orderbook remains steady at RM26.2b (FPSO: RM24.8bn, OMS: RM1.4bn) vs RM22.3bn in 4Q17 with another RM11.1bn worth of potential extension. This will sustain the group’s earnings for the next few years with FPSO contracts ranging from 8 to 12 years.

Earnings Outlook/Revision

• Below expectation – 1Q18 net profit make up 10% of our full year estimate while revenue for the same period account for 15% of our FY18 forecast.

• Forecast reduced – We are slashing our forecasts for FY18 and FY19 due to slower-than-expected revenue recognition. EPS estimates for FY18F and FY19F are reduced by 9.9% and 11.7% while revenue forecasts are lowered by 19.7% and 21.6% respectively.

Valuation & Recommendation

• Maintain BUY call with a lower target price of RM0.94 (previously RM1.05) based on FY18 EPS pegged to a 3-year mean PER of 13x. We continue to favour the company for its huge orderbook that sustains earnings for the long-term.

Source: JF Apex Securities Research - 1 Jun 2018