Results

• Further impairment - Bumi Armada posted a net loss of RM224m in 1Q20 compared to a net profit of RM62m in 1Q19 due to non-cash impairment of RM314m related to Offshore Support Vessels (OSV) and Subsea Construction (SC).

• The latest impairment came after RM234m impairment in the previous quarter due to the Woodside court case and vessels impairment of RM44m. Excluding the impairment, normalised profit stood at RM89.8m (+33% YoY).

• Higher revenue – 1Q20 revenue increased 12% YoY to RM552.6m as the growth in Floating Production & Operation (FPO) (+9% YoY to RM462.1m) and Offshore Marine Services (OMS) (37% YoY to RM90.5m).

• Improved QoQ– Compared with the previous quarter, 4Q19 normalised net profit rose 136% QoQ on the back of a 7% QoQ revenue growth as FPO revenue increased 10% QoQ (due to higher revenue from Armada Kraken FPSO and lower operating costs from Armada Olombendo FPSO) while OMS revenue decreased 6% QoQ following lower revenue from third party vessels.

• Better margins – Operating margin climbed to 44% thanks to higher segmental profit as FPO’s contribution surged 82% QoQ to RM354m, while OMS operating profit declined 81% QoQ to RM6.9m.

• Strong orderbook – Orderbook remains healthy at RM18b (FPO: RM17bn, OMS: RM1bn) with another RM10.3bn worth of potential extension. This will sustain the group’s revenue for the next few years.

Earnings Outlook/Revision

• Within expectation – 1Q20 normalised net profit of RM89.8m achieved 30% of our full year forecast of RM302m while three months revenue account for 23% of our FY20 forecast.

• Forecasts maintained – We are keeping our revenue and EPS forecasts for FY20 and FY21.

• Challenges ahead - Bumi’s OSV utilisation rate currently stands at 56% and income from OMS is expected to remain weak given the low oil price environment. However, overall earnings will be buoyed by ongoing FPSO contracts.

Valuation & Recommendation

• Upgrade to BUY from HOLD with an unchanged target price of RM0.37 based on its base 3-year average P/B following the recent slump in share price.

Source: JF Apex Securities Research - 1 Jun 2020