Results

• Better earnings - Bumi Armada’s PATAMI grew 53% YoY to RM119.8m in 2Q20 following lower operating cost and lower tax rate.

• Higher revenue – 2Q20 revenue increased 13% YoY to RM607m as higher contribution from Floating Production & Operation (FPO) (+17% YoY to RM521m) cushioned the decline in Offshore Marine Services (OMS) (-7% YoY to RM86m).

• Improved QoQ – Compared to the previous quarter, 2Q20 normalised net profit rose 33% QoQ on the back of a 10% QoQ revenue growth as FPO revenue increased 13% QoQ (due to higher revenue from Armada Kraken FPSO) while OMS revenue decreased 5% QoQ due to slight decline in vessel utilisation rate.

• Steady margins – Operating margin was slightly lower at 41% vs 44% in 1Q20 due to higher operating costs from Armada Olombendo FPSO.

• Sterling performance – For 1H20, Bumi Armada reported a net loss of RM110m main due to an impairment of RM314m in 1Q20. Excluding the impairment, six months PATAMI stands at RM210m, which has doubled YoY from 1H19.

• Strong orderbook – Orderbook remains healthy at RM17b (FPO: RM16.3bn, OMS: RM0.9bn) with another RM10.1bn worth of potential extension. This will sustain the group’s revenue for the next few years.

Earnings Outlook/Revision

• Above expectation – 1H20 normalised net profit of RM210m achieved 70% of our full year forecast of RM302m while six months revenue account for 49% of our FY20 forecast.

• Forecasts lifted – We are keeping our revenue estimate but raising our EPS forecasts for FY20 and FY21 by 40% and 30% respectively to account for lower cost and lower tax assumptions.

• Challenges ahead – Gearing remains a concern as the group has to raise cash to repay RM680m of borrowing within 12 months as it faces challenges to monetise assets and dispose OMS and FPO vessels amid travel restrictions due to COVID- 19.

Valuation & Recommendation

• Maintain to BUY with a higher target price of RM0.42 (previously RM0.37) based on its base 3-year average P/B.

Source: JF Apex Securities Research - 1 Sept 2020