Results

• Another impairment - Bumi Armada posted a net loss of RM1.26b in 4Q18 against net profit of RM63.8m in 4Q17 following an impairment of RM1.2b on Armada Kraken and certain offshore support vessels (OSV) vessels.

• The latest round of kitchen sinking came after an impairment of RM563.5m on its OSVs in 3Q18 and RM477m impairment on Armada Kraken in 2Q18.

• Excluding the impairment, Bumi posted a normalised net profit of RM34.3m, down 54% YoY due to lower revenue and higher operating cost.

• Lower revenue – 4Q18 revenue declined 13% YoY to RM576.3m following lower contributions from Floating Production & Operation (FPO) (-16% YoY to RM381.4m due to lower productivity from Armada Kraken) and Offshore Marine Services (OMS) (-7% YoY to RM194.9m due to lower vessel utilisation rate at 38%).

• 4Q18 normalised net profit dropped 54% QoQ while quarterly revenue declined 2% QoQ following higher revenue from OMS (+7% QoQ) but lower revenue from FPO (-6% QoQ).

• For the full year of 2018, reported net loss stands at RM2.3b against a net profit of RM352.2m in 2017 due to total impairment of RM2.2b. FY18 normalised net profit declined 40% YoY to RM216.5m due to higher finance cost. Twelve months’ revenue was slightly higher at RM2.42b (+1% YoY).

• Steady orderbook – Orderbook remains steady at RM20.2b (FPO: RM19.1bn, OMS: RM1.1bn) with another RM10.3bn worth of potential extension. This will sustain the group’s revenue for the next few years.

• Debt refinancing – The management is in the midst of ongoing negotiations with its lenders. Failure to secure refinancing could see Bumi forced to raise funds via rights issue.

Earnings Outlook/Revision

• Exceeded expectation – FY18 normalised net profit of RM352.2m exceeded our full year net profit estimate of RM267m while revenue for the same period achieved 99% of our FY18 forecast.

• Forecasts maintained – We are keeping our earnings forecast for FY19 and FY20.

Valuation & Recommendation

• Downgrade to HOLD call with a lower target price of RM0.35 (previously RM0.60) based on FY19 EPS pegged to a following a 40% discount on its 3-year mean PER of 13.6x due to concerns over its debt refinancing. Other challenges are crude oil price and execution risks. Potential upside is possible compensation of US$280m (>RM1b) from the Armada Claire court case which has commenced recently.

Source: JF Apex Securities Research - 1 Mar 2019