ARMADA (5210) - Bumi Armada - FPSO holds water
Target RM1.50 (Stock Rating: ADD)
Stripping out RM147m one-off items, Bumi Armada’s FY14 core net profit met our expectation, forming 97% of our forecast, but trailed consensus expectation by meeting 91% of its estimates. The defensive FPSO business was the star performer in FY14 and we expect it to continue to anchor the company’s performance, but the OSV and T&I businesses are in for more challenging times. Our target price drops as we reduce our FY15-16 EPS for lower revenue assumptions for OSV and T&I. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We maintain our Add call, with a strong FPSO contract pipeline as a potential re-rating catalyst.
15% drop in FY14 core net profit yoy
Excluding three one-offs amounting to RM147m (RM66m allowances for trade receivables, RM32m impairment charge for assets held for sale and RM49m provision on additional works for an FPSO vessel installation), Bumi Armada posted FY14 core net profit of RM366m, down 15% yoy due to weakness at the offshore support vessel (OSV) and transport and installation (T&I) businesses. The FPSO business remained firm with pretax profit rising 6% yoy. The company announced a full-year DPS of 1.63 sen, which fell short of our expectation of 4 sen. We were negatively surprised by the amount of one-offs and view any share price weakness as a buying opportunity. See overleaf for conference call highlights.
FPSO-led record RM24.5bn order book
Bumi Armada has nine FPSO contracts, making it the world’s 5th largest FPSO operator by fleet size. As at 31 Dec 2014, the company’s order book stood at a new high of RM24.5bn, excluding extension options worth RM12.7bn, also a new record. FPSO made up 87% of the order book (Figures 1 and 2).
Potential charter rate cuts?
FPSO is a defensive business. The contracts are typically long-term because FPSO vessels are converted to work at specific fields. Bumi Armada’s largest contract is the US$2.9bn 1506 contract that will run for 12 years (excluding 8-year extension options) which kicked off last year. Nonetheless, OSV and T&I are in for more challenging times, given the potential charter rate cuts. We cut our FY15-16 EPS by 17% for lower revenue assumptions for OSV and T&I.
Source: CIMB Daybreak - 27 February 2015
Target RM1.50 (Stock Rating: ADD)
Stripping out RM147m one-off items, Bumi Armada’s FY14 core net profit met our expectation, forming 97% of our forecast, but trailed consensus expectation by meeting 91% of its estimates. The defensive FPSO business was the star performer in FY14 and we expect it to continue to anchor the company’s performance, but the OSV and T&I businesses are in for more challenging times. Our target price drops as we reduce our FY15-16 EPS for lower revenue assumptions for OSV and T&I. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We maintain our Add call, with a strong FPSO contract pipeline as a potential re-rating catalyst.
15% drop in FY14 core net profit yoy
Excluding three one-offs amounting to RM147m (RM66m allowances for trade receivables, RM32m impairment charge for assets held for sale and RM49m provision on additional works for an FPSO vessel installation), Bumi Armada posted FY14 core net profit of RM366m, down 15% yoy due to weakness at the offshore support vessel (OSV) and transport and installation (T&I) businesses. The FPSO business remained firm with pretax profit rising 6% yoy. The company announced a full-year DPS of 1.63 sen, which fell short of our expectation of 4 sen. We were negatively surprised by the amount of one-offs and view any share price weakness as a buying opportunity. See overleaf for conference call highlights.
FPSO-led record RM24.5bn order book
Bumi Armada has nine FPSO contracts, making it the world’s 5th largest FPSO operator by fleet size. As at 31 Dec 2014, the company’s order book stood at a new high of RM24.5bn, excluding extension options worth RM12.7bn, also a new record. FPSO made up 87% of the order book (Figures 1 and 2).
Potential charter rate cuts?
FPSO is a defensive business. The contracts are typically long-term because FPSO vessels are converted to work at specific fields. Bumi Armada’s largest contract is the US$2.9bn 1506 contract that will run for 12 years (excluding 8-year extension options) which kicked off last year. Nonetheless, OSV and T&I are in for more challenging times, given the potential charter rate cuts. We cut our FY15-16 EPS by 17% for lower revenue assumptions for OSV and T&I.
Source: CIMB Daybreak - 27 February 2015
