Results

• 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.

Source: JF Apex Securities Research - 3 Sept 2019