INVESTMENT HIGHLIGHTS

• Bumi Armada’s (BAB) 4QFY16 reported operational and net losses for second consecutive quarter

• Normalised 4QFY16 losses excluding exceptional items at –RM134.5m

• Firm orderbook stands at RM25.6b

• OSV utilisation rate in 4QFY16 deteriorated to 49%qoq

• Maintain NEUTRAL with unchanged TP of RM0.63

Unexpected losses due to massive impairment charges. BAB’s 4QFY16 reported operational and net losses for second consecutive quarter. Normalised quarter losses excluding exceptional items is at – RM134.5m. Full year reported losses increased exponentially compared with that of FY15. Excluding impairment losses on the FPSO & FGS and OMS segments along with other retrenchment costs, FY16 still recorded a loss of –RM46m compared with a normalised profit of RM188.5m in FY15.

Impairment charges. For FY16, RM1.004b in impairments were made for the FPSO & FGS segment and RM733.2m in impairments were made for the OMS segment. In addition, the company recorded impairments for assets-held-for-sale of RM5.2m and retrenchment expenses of RM6.2m.

FPSO & FGS segment. Segment revenue more than halved to RM493.4m while suffering an operating loss of –RM186.9m. The disappointing set of results were largely due to lower conversion activities form Eni1506 and Kraken FPSO projects, recognition of supplementary payments for the Kraken FPSO project and reduced contribution from Armada Claire, 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 marginal increase in revenue by +5.6%yoy for the quarter but still recorded wider operating losses at –RM80.1m. The widening losses were largely due to lower vessel utilisation rates – 49% in 4QFY16. There are currently 19 vessels cold-stacked.

Impact on earnings. No changes to our earnings forecasts as our FY17 and FY18 earnings are conservative, excluding further impairments on assets.

Orderbook. The company’s latest orderbook as at 31 Dec 2016 stands at RM25.6b (RM23.5b FPSO & FGS and RM2.1b OMS) with extension options worth up to RM13.9b (RM12.6b FPSO & FGS and RM1.3b OMS).

Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation on BAB with an unchanged 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 - 1 Mar 2017