Bumi Armada’s core earnings came in at MYR195m, in line with our estimates at 73% but disappointing the consensus at 69%. Maintain NEUTRAL with a MYR1.10 TP (from MYR0.89, 9% upside). The company booked another impairment of MYR12.2m from its available for sale OSVs. While the outlook for its OSV and T&I segments does not look promising, its floating assets are providing stable cash flow.

Core earnings of MYR195m. 9M15 revenue came in slightly lower (6.2% YoY). This was mainly dragged down by lower contribution from the offshore support vessel (OSV) and transport & installation (T&I) segments. The OSV wing came in lower due to a decreased utilisation rate (54% as at 9M15), which was lower YoY vis-à-vis 9M14’s 74% but flat when compared to 1H15’s numbers. T&I was dragged down on lower activities coming from its Lukoil (LKOH RM, NR) contract in the Caspian Sea. Bumi Armada did another impairment of MYR12.2m for its OSV assets for sale, reporting a MYR150m net loss. Stripping out the impairments, core profit came in at MYR195m, in line with our estimates at 73% but disappointing consensus at 69%.

Outlook. Bumi Armada’s core business comes from its floating assets, ie floating production, storage and offloading (FPSO) vessels and floating storage units (FSUs). These contributed 58% to revenue. We understand that the Armada Kraken, Armada 1506, Armada Madura and Armada LNG Mediterranean are currently under conversion according to schedule. While Bumi Armada’s floating assets provide a stable cash flow and visibility, its OSV and T&I segments remain volatile.

Maintain NEUTRAL at MYR1.10. With the results coming in line with our expectations, we make no changes to our earnings. We increase our SOP-based TP to MYR1.10 (from MYR0.89) as we increase our USD/MYR rate throughout the life of the firm FPSO contracts (until 2041). With only a 9% upside to our TP, we maintain our NEUTRAL recommendation on this counter. We believe a key catalyst to upgrade our recommendation for Bumi Armada would be a better utilisation rate from its OSV segment and improved orderbook visibility from its T&I division. As of now, the outlook remains uncertain.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Bumi Armada is a provider of marine vessels for the oil & gas industry. The company charters out floating production, storage and offshore (FPSO) and offshore support vessels (OSV).

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Source: RHB Research - 23 Nov 2015