• Keep BUY and SOP-based MYR0.73 TP, 33% upside. There were nosurprises in Bumi Armada’s 9M23 results, as its Kraken operation wasrestored to pre-shutdown levels in early August. We continue to like BABfor its undemanding valuation and strengthening balance sheet, led bystable FPSO operations.

• Within expectations. At 75% of our and Street’s full-year estimates, BAB’s9M23 core earnings of MYR448m (-27% YoY) came in within expectations.No dividends were declared for the quarter, as expected.

• 3Q23 core profit surged by 2.6x QoQ to MYR191m as the operationalperformance of its Kraken asset had been restored to pre-shutdown levelsin early August. Its core profit performance was also further led by strongerJV & associate contributions. 9M23 core earnings contracted by 27% YoYto MYR448m, as a result of an exceptionally weak 2Q23 performance – nothanks to the shutdown of Kraken.

• Outlook. Root-cause assessment or RCA for Kraken is still on-going andan additional new transformer has yet to be installed. Its firm contract isexpiring in 2025 and BAB has begun negotiating the extension option withits client. The group repaid USD37m in borrowings in 3Q23, lowering its netgearing to 0.66x in 3Q23 (0.72x in 2Q23). The Armada Sterling V FPSO,which is under India’s Oil and Natural Gas’ or ONGC KG-DWN 98/2 project,is targeting to achieve first oil in the near term and final acceptancesubsequently. BAB has been recognising the standby rate at its associatelevel since March this year. Moving forward, it intends to work with strategicpartners on any sizeable FPSO project bids. Meanwhile, we were guidedthat the 51%-owned consortium will acquire new 3D seismic data on theTulip discovery (estimated recoverable resource of 860bcf of gas and60mmboe of oil and condensate) to evaluate the potential for a fast-trackdevelopment under the Akia Production Sharing Contract. Such adevelopment could bring an opportunity for BAB to provide and operate aFPSO and an FLNG or gas pipeline. We are also positive on the long termover the signing of the non-binding agreement to develop floating LNGfacilities and carriers, as well as engineer a carbon capture injection systemfor a gas field – both projects are in Indonesia. However, the earningsimpact remains unclear, as the capacity and capex remain unknown –depending on the field development approach and complexity.

• Keep BUY. With no changes in earnings estimates, our TP remains atMYR0.73 with a 6% ESG discount imputed based on our ESG score of 2.7.Our TP also implies FY24F P/E and P/BV of 5.4x (below its 5-year mean of6x) and 0.6x (below +1SD from its 5-year mean).

• Downside risks: Contract cancellations, failure to win new contracts, anda deterioration in the Kraken operation.

Source: RHB Securities Research - 17 Nov 2023