• Keep BUY, with new SOP-based MYR0.70 TP from MYR0.61, 17% upside. Bumi Armada’s FY22 results surpassed our expectations, with core profit surging 24% YoY on better Kraken availability, lower depreciation and finance costs. The group is still actively bidding for new projects while Armada Sterling V is undergoing hook-up and commissioning works. We continue to like the company for its attractive valuation (4.5x FY23F P/E) and strengthening balance sheet, led by stable FPSO operations and consistent debt repayment.

• Results are above expectations, again. At 108% of our and Street full- year estimates, FY22 earnings of MYR831m (+24% YoY) came in above expectations, due to lower tax expenses. No dividends were declared for the quarter, as expected.

• 4Q22 core profit improved by 4% QoQ due to higher contribution from Armada Olombendo, masking lower progress of subsea construction work in the Caspian Sea and pre-FEED contribution. Cumulatively, FY22 core earnings improved by 24% on better Kraken availability, lower depreciation charges (-30%), and finance costs (-8%) as a result of debt repayment.

• Outlook. Two vessels were disposed in 4Q22 and only one vessel is currently on charter in Malaysia. BAB is still in discussion with potential buyers to dispose the only OSV and Armada Claire. Management is confident on the potential extension for the Armada TGT 1 contract that is due for expiry next year given the field is still delivering decent production. BAB repaid USD125m in borrowings in 4Q22 to reduce interest costs, while its net gearing also dipped to 0.92x in 4Q22 (1.03x in 3Q22). Armada Sterling V FPSO, which is under India’s Oil and Natural Gas (ONGC) KG- DWN 98/2 project, is currently undergoing hook up and commissioning work that is due in May this year. On the other hand, the company has submitted tenders for new FPSO projects. Some of the projects, as reported by several articles in Upstream, are located in Indonesia, Brazil, Angola and Mexico. We think BAB could secure up to two new projects, and upfront payment from clients is essential to reduce initial equity outlay. Note that we have yet to impute any new project win in our valuation.

• Keep BUY. We increase FY23F-24F earnings by 5-6% after imputing lower interest costs. Our TP is adjusted to MYR0.70 from MYR0.61 after the latest net debt update is coupled with an incorporation of a 2% ESG discount, based on our ESG score of 2.9, as per our proprietary methodology. Our TP also implies FY23F P/E and P/BV of 5.2x (below its 5-year mean of 6x) and 0.7x (slightly above +1SD from its 5-year mean). Downside risks: Contract cancellations, failure to win new contracts, and a deterioration in Armada Kraken’s operations.

Source: RHB Research - 27 Feb 2023