KEY INVESTMENT HIGHLIGHTS

• 9MFY24 earnings up +44%yoy, came in above expectations
• Revenue up +17%yoy due to higher contribution from Olembendo and Kraken
• Promising prospects for TGT-1 extension, Sterling V charter, but alert on MISC merger
• Maintain BUY with a revised target price of RM0.88

Maintain BUY, revised TP: RM0.88. Bumi Armada Berhad (BAB)'s 9MFY24 earnings came in above our and consensus' yearly expectations at 87%. We maintain our BUY call and revise our target price upward to RM0.88 (previously RM0.85).

9MFY24 PATAMI up +44%yoy. BAB's 9MFY24 revenue gained +17%yoy to RM1.8b, while normalised earnings gained +44.3%yoy to RM717.8m. The improved performance was due to higher contribution from Armada Kraken FPSO and Armada Olombendo FPSO, offset by lower other income mainly due to the gain on disposal of vessels in 9MFY23. 3QFY24 saw 99% of average uptime for all FPSOs and FSUs.

Operations segment profit gained +40%yoy. 9MFY24 revenue increased by +16.5%yoy to RM1.7b, while earnings gained +39.8%yoy to RM1.1b. Revenue increased due to settlement of the escalation of the operating fee of Armada Olombendo FPSO; in comparison to the lower revenue in 1HFY23 which was reduced by the failure of Armada Kraken FPSO's hydraulic submersible pump (HSP) transformers.

Others segment earnings down 8-fold. 9MFY24 revenue rose +60.5%yoy to RM27m due to higher revenue from engineering services.

Conversely, earnings dropped by -37.6%yoy to a deficit of -RM64.9m.

The lower earnings were mainly due to higher foreign exchange losses arising from translation of intercompany balances and fixed deposits denominated in foreign currency in 3QFY24.

USD45m debt repaid, 30% hedged. The group had repaid its debt totaling USD45m AFGS PF Loan (approx. RM200.9m) in 3QFY24, with net gearing at 0.45x - marginally higher than 2QFY24. The debt maturity reprofiling exercise for unsecured corporate debts is now completed with repayments aligned with residual cash flows from projects, with 30% of the debts hedged. Meanwhile, Armada's orderbook stood at RM10.2b as of 3QFY24, with 72% is from its wholly owned FPO units. Certain contracts contain extension options beyond the firm contract period with a total estimated value of RM9.5b. For updates on 3QFY24 charter period of FPO units, refer to Table 1.

Updates: EPCIM Contract, TGT-1 FPSO, MISC MoU. In end-Oct CY24, Bumi Armada's wholly owned subsidiary, Bumi Armada UK Limited (BAUK), has entered an Engineering, Procurement, Construction, Installation, and Modification (EPCIM) agreement with EnQuest Heather Limited (EnQuest) with a contract value of approximately GBP50m (RM280.9m), for 4 years. As of current, the EPCIM is ongoing well. Meanwhile, Armada TGT-1 FPSO has secured a 2-year extension to supply and lease to Hoang Long Joint Operating Company (HLJOC) with a total contract value of approximately USD74.4m (RM332.7m), which is in tandem with BAB's plans with Armada TGT-1. However, there could be a slight refinancing of debt on Armada TGT-1, given that it is an old vessel. Additionally, BAB had signed a non-binding agreement with MISC recently to explore a potential merger with MISC's offshore business unit. If realized, the merger will create a global FPSO powerhouse with the capability to compete in the capital-extensive FPSO subsector. However, given that the MoU is non-binding with a timeline of 9 months, we expect the possibility of alteration to be still on the table.

Revised earnings estimates. All in all, we adjusted our earnings forecast for FY24/FY25/FY26 upward by +5%/+4%/+2% respectively. We are optimistic on Bumi Armada's prospects, on the back of: (i) Olombendo and Kraken to be impaired lesser as it nears the end of their charter, (ii) extension of TGT-1 charter, (iii) commencement of Sterling V's charter rates with reduced debt load, and (iv) Akia PSC progressing into appraisals by the end-year. However, we remain vigilant on the result of the merger discussions with MISC, with uncertainties on the feasibility remain unseen as both BAB and MISC continue business as usual until a binding agreement is signed by FY25. This led to a slight upward revision for our earnings forecast.

We maintain our BUY call on BAB with new target price of RM0.88 by pegging a PER of 6x to a revised EPS25 of 14.8sen. The PER to BAB's 3-year historical PER.

Source: MIDF Research - 25 Nov 2024