INVESTMENT HIGHLIGHTS

• Bumi Armada’s (BAB) 3QFY16 reported earnings in the red due to losses at both gross and operating level

• Normalised 3QFY16 earnings excluding impairments and other one-off items is approximately RM11.47m

• Orderbook stands at RM24.1b

• OSV utilisation rate unchanged past six months at 55%

• Maintain NEUTRAL with lowered TP of RM0.63 per share

Core operational losses. BAB is performing worse operationally compared with 2QFY16 as the company recorded losses at both the gross and operating level of –RM31.1m and –RM67.8m respectively. Its 3QFY16 reported earnings remain in the red but its normalised earnings (excluding impairments, allowances for doubtful debts and retrenchment costs) is approximately RM11.5m – this is lower than that of 2QFY16. Despite the company’s cumulative earnings meeting our earnings expectation in 2QFY16, the latest 9MFY16 normalised earnings of RM87.3m fell short of our and consensus full year earnings estimates by a variance of more than >10%.

FPSO & FGS segment. Segment revenue nearly halved to RM488.2m while suffering an operating loss. The disappointing set of results were largely due to completion of conversion activities on Eni 1506 and Kraken FPSO coupled with loss of contribution from Armada Claire, and reduced contribution from Armada Perdana and Armada Perkasa.

OMS segment. The Offshore Marine Segment (OMS), an amalgamation of the offshore support vessel (OSV) and Transport & Installation (T&I) segments previously, posted an increase in revenue by over >30%yoy for the quarter but still recorded an operating loss. Despite still being in the red, the losses narrowed from higher activity levels from LukOil project and higher contributions from Armada Installer. OSV utilisation rate in 3QFY16 remained at 55%, similar to that of 2QFY16.

Impact on earnings. Based on weaker than anticipated earnings, we are revising our FY16 and FY17 earnings forecasts lower by -20% and -10.3% respectively. We are assuming lower profit margins and higher operating costs.

Orderbook. The company’s latest orderbook as at 30 Sept 2016 stands at RM24.1b (RM22.0b FPSO & FGS and RM2.1b OMS) with extension options worth up to RM12.9b (RM11.7b FPSO & FGS and RM1.2b OMS).

Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation on BAB with a revised target price of RM0.63 per share. Our valuation is premised on PER17 of 15x pegged to EPS17 of 4.2sen. At current market prices, we believe that the stock is fully valued, reflecting its potential future earnings and prospects.

Source: MIDF Research - 25 Nov 2016