Results

• Impairment loss - Bumi Armada posted a net loss of RM502.8m in 3Q18 against net profit of RM123.7m in 3Q17 following a non-cash impairment of RM563.5m mainly on its offshore support vessels (OSV). Excluding the impairment, Bumi posted a net profit of RM75.2m. The second round of kitchen sinking came after the RM477m impairment on Armada Kraken in 2Q18.

• OMS dragged down revenue – 3Q18 revenue dropped 8% YoY to RM588m due to decline in Offshore Marine Services (OMS) revenue coupled with flat sales from Floating Production & Operation (FPO).

• Flat FPO – 3Q18 revenue from FPO was 1% YoY higher at RM405.7m due with ongoing contribution from Armada Olombendo FPSO and Armada Kraken FPSO.

• Improved OSV utilisation – Quarterly revenue from OMS tumbled 24% YoY to RM207.6m due to lower contribution from Armada Installer after completion of work in Turkmenistan while OSV utilisation rate improved to 44% (vs 39% in 2Q18).

• QoQ – 3Q18 normalised net profit rose almost 600% QoQ to RM75.2m. Quarterly revenue declined 10% QoQ due to lower revenue from OMS (-12% QoQ) and FPO (-9% QoQ).

• Steady orderbook – Orderbook remains steady at RM21b (FPO: RM19.7bn, OMS: RM1.3bn) vs RM20.2bn in 2Q18 with another RM10.3bn 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

• Exceeded expectation – 9M18 normalised net profit of RM182.2m has exceeded our full year net profit estimate of RM176m while revenue for the same period accounted for 65% of our FY18 forecast.

• Forecast tweaked – For FY18, we are lowering our revenue forecast by 14% and lifting our normalised net profit forecast by 51% to RM267m while FY19 estimates are maintained. As the OSV market remains weak, earnings will be driven by FPSO. Meanwhile, management is in the midst of negotiations to refinance its debt.

Valuation & Recommendation

• Maintain BUY call with an unchanged target price of RM0.66 which is pegged to a 3-year mean PER of 13x of FY19 EPS. Major challenges are lower oil prices and execution risks.

Source: JF Apex Securities Research - 26 Nov 2018