Results

• Impairment loss - Bumi Armada posted a net loss of RM585.5m in 2Q18 against net profit of RM116.6m in 2Q17 following an impairment of RM478.9m. Excluding the impairment, Bumi posted a net loss of RM106.6m.

• The impairment came after Bumi signed an amendment agreement with charterers of Armada Kraken to settle a dispute stemming from delay in topside commissioning. Under the agreement, Bumi will pay a compensation of RM60m by year-end. Management noted that the agreement enables progression towards the final acceptance and mitigates various exposures under the original contract.

• OMS drags down revenue – 2Q18 revenue dropped 6% YoY to RM654m as decline in Offshore Marine Services (OMS) revenue overshadowed gains in Floating Production & Operation (FPO).

• Rising FPO – 2Q18 revenue from FPO surged 32% YoY to RM446.5m due to increased revenue from Armada Olombendo FPSO.

• Flat OSV utilisation – Quarterly revenue from OMS declined 42% YoY to RM207.6m due to low activity with offshore support vessel (OSV) utilisation rate flat at 39% (vs 38% in 1Q18).

• Lower QoQ – 2Q18 normalised net loss of RM106.6m was a big contrast to a net profit of RM48.4m in 1Q18. Quarterly revenue grew 9% QoQ due to higher revenue from OMS (48% QoQ) due to higher contribution from the LukOil project in the Caspian Sea despite lower revenue from FPO (-3% QoQ).

• Steady orderbook – Orderbook remains steady at RM20.2b (FPO: RM18.8bn, OMS: RM1.4bn) vs RM20.7bn in 1Q18 with another RM11.8bn 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. Management is looking at opportunities for redeployment of Armada Claire and Armada Perdana.

Earnings Outlook/Revision

• Below expectation – 1H18 normalised net loss of RM58.1m is far below our full year net profit estimate of RM426.2m while revenue for the same period account for 39% of our FY18 forecast.

• Forecast reduced – As such, we are slashing our forecasts for FY18 and FY19. EPS estimates for FY18F and FY19F are reduced by 59% and 35% while revenue forecasts are lowered by 11% and 11% respectively.

Valuation & Recommendation

• Maintain BUY call with a lower target price of RM0.66 (previously RM0.94) following our earnings downgrade and roll over our valuation to FY19 EPS, pegged to a 3-year mean PER of 13x.

Source: JF Apex Securities Research - 30 Aug 2018