Results

• Lower earnings - Bumi Armada’s 2Q22 PATAMI declined 13% YoY to RM186.3m due to a RM88m litigation impairment loss after failing to appeal against Woodside Energy for the cancellation of the Armada Claire contract and lower other operating income (-80% YoY to RM12.8m).

• Higher revenue – 2Q22 revenue rose 4% YoY to RM618.4m due to progress of Subsea Construction in the Caspian See and Pre-FEED revenue recognised during the quarter.

• Flat QoQ – Compared to the previous quarter, 2Q22 net profit was flat QoQ as gains from higher revenue (+17% QoQ) were eroded by the litigation impairment.

• Steady operations – All floating production storage and offloading (FPSO) vessels and floating storage units (FSUs) are operating near 100% capacity. The management noted it still has three offshore support vessels (OSVs) to be sold.

• Declined margin – As a results of the litigation impairment, operating margin and net margin dropped to 39% and 30% respectively.

• Steady orderbook – Orderbook was steady at RM13.1b with potential extension worth RM9.4b. The FPSO orderbook can sustain the group’s earnings for the long term with three FPSO contracts expiring in 2024-2025 while another four contracts are in longer tenure. Bumi will continue to bid for new FPSO jobs while the dormant FPSO Armada Claire, which has been fully depreciated, will be sold this year.

Earnings Outlook/Revision

• Within expectation – 1H22 net profit of RM372m achieved 54% of our full year forecast while quarterly revenue of RM529m makes up 40% of our FY22 forecast.

• Forecasts kept – We are keeping our EPS forecasts for FY22 and FY23.

• Lower gearing – Net debt was reduced to RM5.66b from RM5.74b in 1Q22 after the company repaid borrowings of RM397m in 2Q22. This effectively reduced net debt to equity from 1.52x in 1Q22 to 1.36x, the lowest since 2015. Meanwhile, net debt to EBITDA stands at 3.96x after inching slightly higher from 3.86x in 1Q22.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM0.53 - Our target price is based on its base a +1.5 std dev on its 3-year average P/B and FY22f BVPS. We expect prospects to improve given the elevated oil price and Bumi’s continuous effort to lower gearing.

Source: JF Apex Securities Research - 29 Aug 2022