Higher profit - Bumi Armada posted a net profit of RM78.2m in 2Q19 compared to a net loss of RM585.5m in 2Q18, due to impairments totalling RM478.9m, and normalised loss of RM106.6m. The higher earnings came following higher contribution from Armada Kraken FPSO Armada Olombendo FPSO.
Lower revenue – 2Q19 revenue declined 18% YoY to RM535.6m following amid flat performance by Floating Production & Operation (FPO) at RM443.6m and lower revenue from Offshore Marine Services (OMS) (-56% YoY to RM92m due to completion of the LukOil project in December 2018).
Better QoQ – Compared with the previous quarter, 2Q19 normalised net profit rose 16% QoQ on the back of a 9% QoQ revenue growth as FPO revenue climbed 4% QoQ while OMS jumped 39% QoQ as OSV fleet utilisation rate improved to 51% from 39% in 1Q19 due to higher demand in Malaysia.
Improved margins – Operating margin improved to 38% from 34% in 1Q19 while net margin increased to 15% from 13% in the previous quarter. The improvement in 2Q19 came after FPO and OMS segmental margins rose to 63% and 24% from 60% and 14% respectively in 1Q19.
Steady orderbook – Orderbook remains steady at RM18.9b (FPO: RM17.9bn, OMS: RM1bn) another RM9.9bn worth of potential extension. This will sustain the group’s revenue for the next few years.
Earnings Outlook/Revision
Exceeded expectation – 1H19 normalised net profit of RM145.9m grew 36% YoY and achieved 72% of our full year forecast of RM201.7m while six months revenue dropped 18% YoY to RM 1.03b and achieved 38% of our FY19 forecast.
Forecasts lifted – We are raising our EPS forecast for FY19 and FY20 by 55% and 17% respectively following improved efficiency and profit margins but keeping our revenue estimates.
Valuation & Recommendation
Maintain BUY call with a higher target price of RM0.50 (from RM0.47) based on +1 SD to its 3-year average P/B. Risks remain its high debt and gearing level despite the recent refinancing.
Potential upside is the possible compensation of US$280m (>RM1b) from the Armada Claire court case and judgement is expected in 4Q19.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....