Bumi Armada (BAB) posted 3QFY24 core net profit of RM255.9m, a 46.6% YoY increase, driven by higher utilisation rate of the FPSO Armada Kraken as it recovered from the shut-down incident back in the May- September 202 period. On a QoQ basis, core net profit remained steady with a slight increase of 0.5%, even though revenue decreased by 4.7% due lower variation order and the weakening USD against MYR. Overall, the 9MFY24 results met our expectations at 76.1% but exceeded consensus at 81.9% of full-year estimates. Although we expect the depressed sector-wide valuation will persist due to the downside risk for oil prices as we highlighted in our sector report published on 15 November, we still like BAB due to its long-term recurring income from its FPSO chartering contracts. With the recent 2-year extension of the Armada TGT contract, BAB's order book now stands at RM10.2 billion for the firm contract period until 2034. We raise our FY25F/26F estimates by 10% on average to reflect the extension. As such, we retain our Outperform call with slightly higher TP of RM0.67 (from RM0.65).

• Steady core profit despite lower revenue and JV contributions. On QoQ basis, BAB posted a steady core net profit of RM255.9m, 0.5% higher despite recording lower revenue by 4.7% QoQ due to lower variation order from Armada Olombendo and the weakening USD against MYR. It also recorded lower contribution from JVs after reflecting the full impact of a net loss from the 30%-owned Armada Sterling V FPSO. This was due to a conservative depreciation assumption, with 20% of the residual value by the end of the 9-year firm period, and the remaining 20% to be recognized over the 7-year option period.
• Flagging for impairment. Management guided that there will be another impairment in 4QFY24 arising from Armada Kraken, albeit lesser than RM514.4m in 4QFY23 as it is reaching into the option period in 2QFY25. Based on this, the impact from current net assets would be less than 10%.
• Unlocking BAB valuation through merger. There were no further details being disclosed during the briefing on the potential merger exercise, other than in the announcement to maintain its listing status. We believe the merger will likely to occur through a share swap with MISC, consequently may trigger MGO. Therefore, our TP may possess potential upside given our valuation of RM4.0bn represent a 30.3% steep discount against its net asset of RM5.7bn or 96sen / share. Furthermore, on post-merger, we are positive on the merged-entity as it has stronger financial capacity to bid new capital-intensive FPSO projects in future. The existing BAB's shareholders also may benefit from the incremental earnings from 12 operating assets under MISC and being part of PETRONAS group.

Source: PublicInvest Research - 25 Nov 2024