• Keep BUY and MYR0.68 TP, 17% upside. Bumi Armada’s 1Q24 results beat estimates on stronger-than-expected contributions from Armada Olombendo. Its valuation remains fairly attractive, at 5.8x FY25 P/E – assuming the charter for Armada Kraken is extended at a lower rate. The continuous strengthening of its balance sheet and solid operating cash flow allows BAB to bid for new projects and expand into other new ventures.

• Above expectations. At 32% and 31% of our and Street full-year estimates, BAB’s 1Q24 core earnings of MYR250m (-14% QoQ, +22% YoY) came in above expectations, due to an additional boost arising from the finalisation of daily operating fees with a charterer. No dividends were declared for the quarter, as expected.

• BAB recorded a core profit of MYR250m (-14% QoQ, +22% YoY) after stripping off a MYR10m unrealised FX loss. The weaker QoQ performance was led by the absence of an additional one-off net profit contribution from Armada Kraken, following the resolution of an outstanding issue with the charterer. This was offset by a higher contribution from Armada Olombendo due to the finalisation of the daily operating fee escalation. Core earnings improved 22% YoY from the stronger Armada Olombendo contribution, as mentioned earlier.

• Outlook. Following the conclusion of the daily operating fee escalation, management guided that it will result in an additional MYR7m in revenue from Armada Olombendo per quarter, and this may have minimal increases until the end of the contract period. BAB is currently in talks with the client on the potential extension of the charter, but Enquest has guided that the lease rate will be reduced by 70% from 1 Apr 2025. Note that Armada Kraken has been debt-free since 2023. BAB repaid USD26m in borrowings in 1Q24, lowering its net gearing to 0.56x (0.65x in 4Q23). The MYR1.5bn sukuk murabahah and its corresponding derivative financial liabilities of MYR607m have been classified as current liabilities, as the repayment is due within the next 12 months. BAB has received binding letters of commitment from financiers for new financing of USD400m, and expects to conclude this within the next few months. The Armada Sterling V FPSO, which is under India’s Oil and Natural Gas’ project (or ONGC KG-DWN 98/2), achieved first oil in January and is targeting to achieve final acceptance in June.

• Keep BUY. We lift FY24 earnings by 5% to factor in the additional bump-up from Armada Olombendo. Our DCF-based TP remains unchanged at MYR0.68, post rolling forward our valuation base year to FY25 with a 6% ESG discount imputed, based on our ESG score of 2.7. Downside risks: Contract cancellations, failure to win new contracts, and a deterioration in the Kraken operation.

Source: RHB Research - 31 May 2024