Results

• Higher YoY earnings - Bumi Armada’s 1Q23 PATAMI climbed 8% YoY to RM201m due to higher revenue (+3% YoY to RM544m), higher share of profit from associates and higher other operating income.

• Lower QoQ – Compared to the previous quarter, 1Q23 net profit decreased 5% QoQ amid lower revenue (-10% QoQ) due to lower contribution from Armada Kraken FPSO and lower variation order from Armada Olombendo FPSO. The lower profit in 1Q23 was due to absence of tax reversal and lower share of results from JVs.

• Steady operations – All FPSOs and floating storage units (FSUs) are operating near 100% capacity. The management has sold its last offshore support vessel and Armada Claire FPSO with disposal gains to be recognized in 2Q23. Meanwhile, Bumi Armada’s 30%-owned FPSO, Armada Sterling V was moored at offshore India and is now preparing for first oil. The FPSO is expected to start topline contribution this year.

• Resilient margins – As a result of lower operating costs, net profit margin increased to 37% from 35% in 4Q22. Similarly, operating margin was higher at 48% vs 42% in 4Q22.

• Lower orderbook – Orderbook declined to RM11.1b from RM11.7b in 4Q22 with potential extension worth RM9.3b. 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.

Earnings Outlook/Revision

• Results within expectation– 1Q23 net profit achieved 28%/24.7% of our/consensus full year forecast while three months’ revenue was also within expectation after hitting 21%/21.6% of our and consensus FY23 forecast.

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

• Continuously lower gearing – Net debt was reduced to RM4.34b from RM4.67b in 4Q22 after the company repaid borrowings of RM490m in 1Q23. This effectively reduced net debt to equity from 0.92x in 4Q22 to 0.82x, the lowest since 3Q15. Meanwhile, net debt to EBITDA stands at 3.03x after a decrease from 3.29x in 4Q22.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM0.61 – Our target price is based on its base a +1.5 std dev on its 3-year average P/B and FY23f BVPS. We like the stock for its earnings momentum and 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 - 26 May 2023