Bumi Armada Berhad (ARMADA) is a Malaysia-based international offshore energy facilities and services provider spreading across Asia, Europe, and Africa. The company’s primary earnings driver, which is the Floating Production Storage Offloading (FPSO) segment has recorded a 3-year net profit CAGR of 16% underpinned by strong performances from FPSO Olombendo and Kraken. We expect ARMADA’s earnings to remain steady in FY22 and FY23 driven by the increasing activities across the entire O&G value chain. We peg a target price of RM0.86 based on 8x PER (Small Cap O&G sector average) over FY23 EPS. At current share price, we believe ARMADA is deeply undervalued as compared to its peers, hence we recommend a BUY with potential upside of more than 100%.

ARMADA expects the existing portfolio of the Floating Production & Operations (FPO) business to be stable in 2022. As at Dec 2021, the company has an outstanding order book of RM13.6bn with some containing extension options with a total potential value of RM8.9bn. This provides great earnings visibility for ARMADA.

The company has a fleet of seven FPSOs (4 wholly owned and 3 jointly owned). ARMADA’s operational executions have been solid whereby all of the other FPSOs are operating above 90% uptime. Additionally, the complete construction of A98/2 FPSO will be a new earnings driver for ARMADA moving forward. The demand of FPSO is expected to increase given the high crude oil price of above US$100/barrel. Moreover, the regional FPSO market is in a bright spot as oil majors continue to ramp up investment to take advantage of the current high oil prices.

The offshore marine segment (OMS) suffered heavy losses in the past 4 years due to stiff competition. ARMADA sold 20 offshore service vessels (OSV) in FY21 resulting a gain of RM28m. The remaining 3 OSVs were subsequently sold in January 2022 for USD44.5m. We believe this is a good strategic move as the segment no longer drag down ARMADA’s future earnings.

ARMADA’s FY20 and FY21 earnings were greatly affected by huge losses in the OMS segment. Following the disposal of all OSM assets, we expect ARMADA’s earnings to improve in FY22. We are forecasting ARMADA to register net earnings of RM617.8m and RM632.8m for FY22 and FY23 respectively. The company’s net gearing of 1.6x is at its lowest since 2016 and we expect it to further reduce to below 1.0x by FY23-24.

Source: Rakuten Research - 12 May 2022