• Keep BUY, new SOP-based MYR0.58 TP from MYR0.65, 32% upside. Bumi Armada’s 1Q22 results outperformed our expectations, with core profit surging 21% YoY on lower depreciation and finance costs. Apart from bidding for new FPSO projects, it is also exploring new opportunities such as floating LNG (FLNG) and carbon capture projects in the longer run. BAB remains our sector Top Pick for its undemanding valuation (3.8x FY23F P/E) and strengthening balance sheet, led by stable FPSO operations and continuous asset monetisation.

• Results are above expectations. At 29% and 30% of our and Street full- year estimates, 1Q22 earnings of MYR178m (+26% QoQ, +21% YoY) came in above our expectations, due to lower-than-expected depreciation and finance costs . No dividends were declared for the quarter, as expected.

• 1Q22 core profit improved by 26% QoQ and 21% YoY due to better Kraken availability and lower depreciation charges (-26% QoQ, -34% YoY), led by a non-operating FPSO that was fully depreciated in Dec 2021 and finance costs (-8% QoQ; -17% YoY) as a result of debt repayment.

• Outlook. BAB is no longer reporting segmental numbers on the basis of FPSO and offshore marine services, subsequent to the OSV disposals. All vessels including three OSVs, two sub-sea construction vessels, and one JV sub-sea construction vessel are now under the “Operations” division while the “Others” division will include technology, engineering and projects (TEP) and other corporate services. The USD50m subsea construction works are expected to be completed by 2022, and Armada Claire will be sold or scrapped. Meanwhile, BAB repaid USD107m in borrowings in 1Q22 to reduce interest costs, while its net gearing also dipped to 1.33x in 1Q22 (1.55x in 4Q21). India’s Oil and Natural Gas (ONGC) KG-DWN 98/2 FPSO construction is 87% completed as of Apr 2022, and BAB aims to complete it by 2H22.

• Keep BUY. We increase FY22-24F earnings estimates by 3-4% after lowering finance and depreciation charges. Our TP drops to MYR0.58 from MYR0.65 after rolling forward our valuation base year to FY23. Our TP also incorporates a 2% ESG discount, based on our ESG score of 2.9, as per our proprietary methodology. Our TP implies FY23F P/E and P/BV of 5.9x (below its 5-year mean of 7.2x) and 0.82x (slightly above +1.5SD from its 5-year mean). Downside risks: Contract cancellations, weaker OSV utilisation rates, and a deterioration in Armada Kraken’s operations.

Source: RHB Research - 26 May 2022