Results

• Lower earnings - Bumi Armada’s reported PATAMI dropped 44% YoY to RM85.6m in 3Q20 following impairment of RM16m for vessels held-for-sale and two planned shutdowns were conducted for Armada Kraken and Armada TGT1. Excluding the impairment, normalised PATAMI dropped 34% YoY to RM101.8m.
• Higher revenue – 3Q20 revenue increased 7% YoY to RM564.4m due to higher contributions from Floating Production & Operation (FPO) (+4% YoY to RM470.5m) and Offshore Marine Services (OMS) (+27% YoY to RM93.9m).
• Within expectation – 9M20 normalised net profit of RM312m achieved 73.4% of our full year forecast of RM424m while nine months revenue account for 72.5% of our FY20 forecast.
• Slower QoQ – As compared to the previous quarter, 3Q20 reported and normalised net profit tumbled 29% QoQ and 15% QoQ respectively on the back of a -7% QoQ revenue decline as FPO revenue decreased 10% QoQ, while OMS revenue increased 10% QoQ due to higher vessel utilisation rate.
• Lower margins – Operating margin was lower at 37% vs 41% in 2Q20 due to lower revenue as a result of the maintenance shutdown.
• Moderate performance – For 9M20, Bumi Armada reported a net loss of RM18.6m mainly due to total impairment of RM330m. Excluding the impairment, nine months PATAMI stood at RM312m, which was 6% YoY higher than 9M19. 9M20 revenue grew 11% YoY to RM1.7b.
• Strong orderbook – Orderbook remains healthy at RM17.2b (FPO: RM16.3bn, OMS: RM0.9bn) with another RM10bn worth of potential extension. This will sustain the group’s revenue for the next few years.

Earnings Outlook/Revision

• Forecasts maintained – We are keeping our revenue estimate and EPS forecasts for FY20 and FY21.
• Challenges ahead – Gearing remains a concern as the group has to raise cash to repay RM656m of borrowing within 12 months as it faces challenges to monetise assets and dispose OMS and FPO vessels amid travel restrictions due to COVID19.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM0.42 based on its base 3-year average P/B.

Source: JF Apex Securities Research - 20 Nov 2020