INVESTMENT HIGHLIGHTS

• Bumi Armada’s (BAB) 1QFY17 reported profit swung back into the black at RM48.1m

• No impairments recorded for the quarter

• Normalised earnings excluding write-backs and net forex grew by+61.9% to RM66.9m

• Firm orderbook stands at RM23.9b

• OSV utilisation rate in 1QFY17 at 43%

• Maintain NEUTRAL with revised TP of RM0.71 per share

Earnings swung into black, no impairments recorded. BAB’s 1QFY17 reported earnings swung into the black at RM48.1m while its normalised earnings excluding write-backs on doubtful debts and net forex gains grew by +61.9%yoy to RM66.9m. 3MFY17 earnings managed to keep pace with our and consensus earnings expectations, accounting for 27.2% and 24.4% of full year earnings estimates respectively.

Healthy operating cash flow. BAB generated healthy net operating cash flow of RM183.8m for 1QFY17.

FPO (previously FPSO & FGS) segment. Segment revenue and profit increased by +10.7%yoy and +96.4%yoy respectively. The commendable results are attributable to higher contribution from Armada Olombendo FPSO and Armada LNG Mediterrana FSU. The prospects for BAB’s FPSO are clearing up as it registered a total uptime of 99% across its FPSO fleet. In addition, the Armada Kraken is undergoing final commissioning in preparation of first oil.

OMS segment. The Offshore Marine Segment (OMS), an amalgamation of the offshore support vessel (OSV) and Transport & Installation (T&I) segments posted declines in revenue and profit of - 23.2% and -51.4%yoy as the company registered lower contribution from the LukOil project and lower OSV vessel utilisations of only 43% in 1QFY17 compared with 49% in 1QFY16. 21 vessels are being coldstacked at the moment. Most of the OSV contracts secured in 1QFY17 have durations of between four days to seven months (spot charters).

Impact on earnings. While we are maintaining our FY17 earnings estimates at this juncture, we are increasing our FY18 forecasts by +13.8% as we are now more confident of the company’s FPSO segment profit generating capability.

Orderbook. The company’s latest orderbook as at 31 March 2017 stands at RM23.9b compared with RM25.6b as at 31 Dec 2016. 92% of the orderbook consists of FPO contracts while the remaining 8% are OMS jobs. The optional extension orderbook stands at RM13.7b.

Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation on BAB with a revised target price of RM0.71 per share. We roll forward our valuation base year to FY18 pegging forward PER18 of 15x to EPS18 of 4.7sen. Although the prospects for the company is looking slightly more positive, we believe that there are still macro challenges ahead for this capital intensive sub-segment of the oil and gas value chain.

Source: MIDF Research - 1 Jun 2017