Results

• Back into the black - Bumi Armada posted a net profit of RM151.5m in 3Q19 compared with a net loss of RM513.4m in 3Q18 due to gains from asset disposal, absence of impairments totalling RM563.5m and tax exemptions for Armada Sterling FPSO and Armada Sterling II FPSO. Normalised profit stands at RM71.6m after excluding other operating income of RM81.8m which includes the gains from disposal of Armada Perdana FPSO, 5 offshore support vessels (OSVs) and 2 Nigeria-based entities.

• Lower revenue – 3Q19 revenue declined 10% YoY to RM527.8m as the growth in Floating Production & Operation (FPO) (+12% YoY to RM453.9m due to higher contribution from Armada Kraken FPSO) was unable to cushion the decline in Offshore Marine Services (OMS) (-59% YoY to RM74m due to the completion of LukOil contract in the Caspian Sea in December 2018).

• Mixed QoQ – As compared to the previous quarter, 3Q19 normalised net profit rose 15% QoQ on the back of a 1% QoQ revenue decline as FPO revenue climbed 2% QoQ while OMS dropped 20% QoQ.

• Higher margins – Operating margin increased to 47% from 38% in 2Q19 while net margin increased to 29% from 19% in the previous quarter. The improvement in 3Q19 came after the OMS segment enjoyed forex gain while the FPO segment’s profit declined 19% QoQ to RM226.1m no thanks to a one-off discount obtained from Armada Olombendo FPSO’s vendors on costs incurred during the conversion phase of the vessel in 2Q19.

• Healthy orderbook – Orderbook remains healthy at RM18.5b (FPO: RM17.6bn, OMS: RM0.9bn) another RM10bn worth of potential extension. This will sustain the group’s revenue for the next few years.

Earnings Outlook/Revision

• Below expectation – 9M19 normalised net profit of RM184m achieved 59% of our full year forecast of RM312.7m while nine months revenue dropped 16% YoY to RM 1.56b and achieved 58% of our FY19 forecast.

• Forecasts lowered – We are reducing our revenue and EPS forecast for FY19 by 15% and 15.4% respectively while keeping our FY20 estimates.

Valuation & Recommendation

• Downgrade to HOLD from BUY with an unchanged target price of RM0.50 based on +1 SD to its 3-year average P/B following the recent run-up in share price. Risks remain its high debt and gearing level despite obtaining refinancing.
• Potential upside is the favourable outcome and possible compensation of US$280m (>RM1b) from the Armada Claire court case with judgement expected in 4Q19.

Source: JF Apex Securities Research - 25 Nov 2019