• Keep BUY, new SOP-based MYR0.80 TP from MYR0.70, 21% upside. Bumi Armada’s 1Q23 results are in line with our expectations, with core profit growing by 16% YoY. The group is still actively bidding for new jobs, and is comfortable executing 1-2 projects with its partner. We continue to like the company for its attractive valuation (4.8x FY24F P/E) and strengthening balance sheet, led by stable FPSO operations and consistent debt repayment.

• Within expectations. At 26% and 25% of our and Street full-year estimates, BAB’s 1Q23 earnings of MYR204m (-6% QoQ; +16% YoY) are within expectations. No dividends were declared for the quarter, as expected.

• 1Q23 core profit improved by 16% YoY due to higher engineering services charged to its jointly-owned FPSO and higher interest income. This has masked higher finance costs. On a QoQ basis, 1Q23 core earnings contracted by 6% on lower JV & associate contributions and higher tax expenses (vs a tax credit in 4Q22).

• Outlook. BAB continued to deliver stable operating cash flow of MYR288m (+47% YoY) in 1Q23, backed by a good operating performance across all the FPSOs and floating storage units. Its subsea assets, Armada Installer and Armada Constructor, are currently in lay-up mode and undergoing regular maintenance works. BAB is pursuing new jobs in the Caspian Sea. Meanwhile, it also repaid USD110m in borrowings in 1Q23, lowering its net gearing to 0.82x in 1Q23 (0.92x in 4Q22). Armada Sterling V FPSO, which is under India’s Oil and Natural Gas (ONGC) KG-DWN 98/2 project is now ready to commence commissioning, upon the provision of first oil by ONGC. BAB is in talks with the client over the potential standby rate payment. Meanwhile, it has submitted tenders for new FPSO projects and is comfortable to take on 1-2 projects together with its partners.

• Keep BUY. We maintain our earnings estimates, while our TP rises to MYR0.80 from MYR0.70 after we rolled our valuation base year forward to FY24. Our TP also builds in a higher 6% ESG discount, based on our revised ESG score of 2.7 (from 2.9). Our TP also implies FY24F P/E and P/BV of 5.9x (at 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.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for more details.

Source: RHB Research - 26 May 2023