INVESTMENT HIGHLIGHTS

• Bumi Armada’s (BAB) 1QFY18 reported earnings sustained year-over-year at RM48.4m

• Normalised earnings however registered RM68.2m (+3%yoy)

• Firm orderbook stands at RM26.2b (from RM22.3b)

• OSV utilisation rate in 1QFY18 persist at 40%

• Upgrade Trading Buy with revised TP of RM0.89 per share

Performance largely within estimates. BAB’s 1QFY18 reported earnings sustained year-over-year at RM48.4m. Excluding exceptional items i.e. impairment on trade receivables, forex losses, fair value movements on derivatives and one-off retrenchment expenses, BAB’s normalised earnings grew by +3%yoy to RM68.9m. 3MFY18 earnings largely met our expectations at 20% of full year profit forecasts but lagged consensus estimates by a variance of more than <10%.

FPO (previously FPSO & FGS) segment. Segment revenue ballooned by +92%yoy to RM460.3m while segment profit surged by +178.8%yoy to RM193.5m. The spike in numbers is largely attributable to higher contribution from Armada Olombendo FPSO and Armada Kraken FPSO.

OMS segment. The Offshore Marine Segment (OMS), an amalgamation of the offshore support vessel (OSV) and Transport & Installation (T&I) segments suffered revenue decline of -14.9%yoy to RM140.0m while profits entered the red at -RM38.6m. The dismal figures are due to low OSV utilisation rates and lower contribution from the LukOil project in the Caspian Sea. Combined OSV utilisation rate declined to 40% in 1QFY18 compared with 48% in 4QFY17.

Impact on earnings. As the impairment charges on Armada Perdana chartered by Erin Petroleum came in slightly higher than the guidance of RM30m for FY18, we are revising our FY18 and FY19 earnings downwards by -2.1% and -2.0% respectively.

Orderbook. The company’s latest orderbook as at 31 March 2018 stands at RM26.2b compared with RM22.3b as at 31 December 2017. 95% of the orderbook consists of FPO contracts (RM24.8b) while the remaining 5% are OMS jobs (RM1.4b). The optional extension orderbook stands at RM11.1b.

Upgrade to Trading Buy. The recent broad market decline presents buying opportunity for BAB. We are of the opinion that: (i) company fundamentals remain intact; (ii) FPSO projects poised to pick up in FY18 and FY19 and; (iii) earnings stability seen in FY18. We are upgrading BAB to TRADING BUY (previously Neutral) with a revised TP of

RM0.89 per share to take advantage of the share price decline and the trading opportunity for recovery. Our valuation is based on PER19 of 15x pegged to EPS19 of 5.9sen. With the company’s macro outlook improving and optimism on upstream exploration and production activities, we believe that the FPO segment could benefit positively. However, we still believe that the OMS segment could face further headwinds as the OSV segment (especially the higher brake horsepower vessels) remain in an oversupply state.

Source: MIDF Research - 1 Jun 2018