Results

• Lower earnings - Bumi Armada’s 3Q22 PATAMI declined 2.4% YoY to RM153.4m due to a downward revision in the residual value of its  vessels.

• Higher revenue – 3Q22 revenue rose 26% YoY to RM653.1m due to  progress of Subsea Construction in the Caspian See. 

• Declined QoQ – Compared to the previous quarter, 3Q22 net profit dropped 19% QoQ as gains from higher revenue (+6% QoQ) were eroded by lower vessels residual value and increase in useful life of a FPSO vessel with a financial impact of RM74m (including share of JV  results of RM46m).

• 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 sold one offshore support vessel in October and is in active discussions with potential buyers for the two remaining OSVs. Bumi Armada’s 30%-owned  FPSO, Armada Sterling V, has sailed away from the construction yard in Singapore and is expected to arrive in offshore India by year end.  The FPSO is expected to start topline contribution next year.

• Declined margin – As a result of the lower vessels residual value,  net margin dropped to 23% from 30% in 2Q22. However, operating  margin climbed 3ppts to 42%. 

• Steady orderbook – Orderbook was steady at RM13b with potential extension worth RM9.9b. 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 or scrapped this year.

Earnings Outlook/Revision 

• Earnings within expectation but revenue below – 9M22 net profit of RM521.7m achieved 76% of our full year forecast while quarterly revenue of RM1.8bm was below expectation after hitting  63% of our FY22 forecast due to slower-than-expected revenue recognition in work progress. 

• Forecasts lowered – We are lowering revenue forecasts for FY22  and FY23 by 18% and 14% respectively. Meanwhile, we are keeping FY22 EPS estimate intact and reducing FY23 EPS by 13%. 

• Reduced gearing – Net debt was reduced to RM5.31b from  RM5.66b in 2Q22 after the company repaid borrowings of RM337m  in 3Q22. This effectively reduced net debt to equity from 1.36x in 2Q22 to 1.22x, the lowest since 2015. Meanwhile, net debt to  EBITDA stands at 3.83x after a slight decrease from 3.96x in 2Q22.

Valuation & Recommendation

• Maintain BUY with a higher target price of RM0.61 (previously RM0.53) – Our target price is based on its base a  +1.5 std dev on its 3-year average P/B and roll over to FY23f BVPS. We expect earnings momentum to continue given the elevated oil price and Bumi’s continuous effort to lower gearing.  

Source: JF Apex Securities Research - 25 Nov 2022