Results

• Higher earnings - Bumi Armada’s 4Q22 PATAMI surged 79% YoY to RM211m due to higher revenue (+18% YoY to RM605m), higher share of profit from associates and tax reversal.

• Improved QoQ – Compared to the previous quarter, 4Q22 net profit climbed 41% QoQ despite lower revenue (-7% QoQ) due to lower progress of Subsea Construction work in the Caspian Sea. The improved profit in 4Q22 was due to higher share of profit from associates of RM39.6m following lower estimated residual value for all jointly owned floating production storage and offloading (FPSOs) in the previous quarter resulting in a deficit of RM43.2m in 3Q22.

• Steady operations – All FPSOs and floating storage units (FSUs) are operating near 100% capacity. The management noted it sold two offshore support vessel in 4Q22 and is in active discussions with potential buyers for the only remaining OSV. Bumi Armada’s 30%- owned FPSO, Armada Sterling V, has arrived in offshore India and is now ready to commence commissioning. The FPSO is expected to start topline contribution this year.

• Declined margin – As a result of the higher profit, net margin increased to 35% from 23% in 3Q22. However, operating margin was flat at 42%.

• Lower orderbook – Orderbook declined to RM11.7b from RM13b in 3Q22 with potential extension worth RM9.2b. 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.

Earnings Outlook/Revision

• Results above expectation– 2022 net profit of RM724.7m (+28% YoY) achieved 107% of our full year forecast while twelve months’ revenue of RM2.41b (+11% YoY) was also above expectation after hitting 104% of our FY22 forecast.

• Forecasts maintained – We are keeping our forecasts for FY23 and FY24.

• Continuosly lower gearing – Net debt was reduced to RM4.67b from RM5.31b in 3Q22 after the company repaid borrowings of RM567m in 4Q22. This effectively reduced net debt to equity from 1.22x in 3Q22 to 1.08x, the lowest since 2Q15. Meanwhile, net debt to EBITDA stands at 3.29x after a decrease from 3.83x in 3Q22.

Valuation & Recommendation

• Downgrade to HOLD with an unchanged target price of RM0.61 as share price has appreciated – 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 like the stock for its earnings momentum and Bumi’s continuous effort to lower gearing. However, we opine that the stock is fully valued at the moment and subject to rerating if it secures new FPSO contracts.

Source: JF Apex Securities Research - 27 Feb 2023