• Keep BUY and MYR0.73 TP, 33% upside. Bumi Armada continues to deliver sturdy results, and a final impairment on Kraken has been widely guided for. The stock is still trading at a fairly attractive 4.7x FY25F P/E – assuming the charter for Armada Kraken is extended at a lower rate. Its potential merger with MISC’s (MISC MK, BUY, TP: MYR9.27) offshore businesses could improve its own financing access and tender win rate but, ultimately, the structure and pricing of the deal would be crucial determining factors.

• Within expectations. At 80% and 82% of our and Street full-year estimates, BAB 9M24 core earnings of MYR761m (+70% YoY) are in line with expectations. No dividends were declared for the quarter, as expected.

• BAB recorded a 3Q24 core profit of MYR255m (flat QoQ, +34% YoY) after stripping off MYR44m in unrealised FX losses. The QoQ performance was flat as the lower variation order from Alombendo, weakening USD vs MYR, and softer JV & associates contribution was largely offset by lower finance costs as well as lower depreciation charges. Its 9M24 core earnings strengthened by 70%, thanks to higher contributions from Armada Kraken following the resolution of an outstanding issue with the charterer, as well as higher Armada Olombendo contributions, as mentioned earlier.

• Outlook. Armada Kraken’s charter has been extended by one year to Apr 2026, at lower rates. Management expects to book a final impairment on the vessel by the year-end at a smaller magnitude, as Armada Krakan’s value-in- use or VIU remains lower than its net book value. Recall that BAB impaired the vessel by MYR514m in 4Q23. Meanwhile, the group repaid USD45m in borrowings in 3Q24, while USD400m in corporate syndicated facilities were drawn down to redeem the sukuk murabahah. 3Q24 net gearing ticked up to 0.45x (2Q24: 0.44x). Meanwhile, the Armada Sterling V FPSO was in the red in 3Q, due to aggressive depreciation policies (depreciating by 80% of its book value over the next nine years), and is expected to turn profitable by 2H25. The charter extension for Armada TGT has been extended for another two years with a <10% reduction in daily charter rate. We are also generally positive on BAB’s potential merger with MISC’s offshore businesses which could strategically expand its project portfolio and operational footprint – thereby addressing its limited recent tender wins, which have likely been constrained by financing challenges. This merger could boost BAB’s financing access but, ultimately, its structure and pricing are crucial factors.

• Keep BUY. We maintain our earnings estimates and DCF-based TP of MYR0.73. Our TP has a 2% ESG discount imputed, based on our ESG score of 2.9. Downside risks: Contract cancellations, failure to win new contracts, and a deterioration in the Kraken operations.

Source: RHB Securities Research - 25 Nov 2024