ARMADA (5210) - BUMI ARMADA - Looking Forward To 2017
Bumi Armada’s (BAB) full
year FY16 performance was weak, with revenue declining to RM1.4bn (-
35.0% YoY) and net loss widening to RM1.9bn (->100.0% YoY). Excluding
the RM1.7bn impairment charge taken for the year, core loss would be
RM52.6m (->100.0%YoY). Below expectations, BAB’s earnings missed ours
and consensus’ estimates by c.-30%. Revenue remained weaker YoY with
lower conversion activities for Kraken and ENI 1506 FPSOs, coupled with
reduced contribution from Armada Claire, Armada Perdana and Armada
Perkasa, albeit partly offset by higher contribution from LukOil in the
Caspian Sea. EBITDA, in the same trend, was lower by 41.9% YoY. Average
OSV utilisation rate fell to 48% this quarter however. We expect BAB’s
performance going forward to be boosted by earnings from the 4 major
FPSO & FGS contributions, seeing first oil and/or gas in 2017. We
retain our Outperform recommendation with an unchanged TP of RM0.90 derived
by our DCF approach. The Group’s higher order book stands at a firm
RM25.6bn with RM13.9bn optional extensions, predominantly in the FPSO
and FGS segments as at 31 December 2016, with some recent wins for the
OMS segment.
- FPSO & FGS (Revenue -62.6% YoY). BAB posted a fall in revenue due mainly to the lower conversion activities on the ENI 1506 and Kraken FPSO coupled with recognition of supplementary payments for the Kraken FPSO project. EBITDA was subsequently lower >100.0% as there was also a reduction in earnings from JV operations of Armada Sterling II , lower conversion activities of Karapan Armada Sterling III (Madura).
- OMS (Revenue +5.6% YoY) Average utilisation fell to 48% in 4QFY16 (55% in 3QFY16) attributed to the monsoon season effect, but nevertheless the Group’s increased activities from the LukOil project in the Caspian Sea and Armada Installer offset the lower OSV utilisation. Currently 19 OSVs are cold stacked. New OMS projects secured in 4QFY16 include Armada Firman 2 (1month charter in Malaysia), Armada Tuah 101 (contract extension for 6 months in Nigeria) and Armada Tuah 307 (reactivated 4 months charter in Angola with ENI). BAB will continue to manage this division with a particular focus on cashflows, to brace through this challenging period.
- Impairments of RM1.7bn was made for various FPSO, OMS vessels, and AFS financial assets of RM5.2m. FPSO & FSO – RM1.0bn impairments is mainly for Armada Perdana, Armada Condor, Armada KP1. OMS – RM733.2m impairments is mainly for 35 vessels. Management has stated that its assets are sufficiently provided for and should not expect further impairments going forward.
- Armada Kraken concerns. Albeit the FPSO to have completed its hook-up as at February 15 2017 and is in the midst of getting ready for first oil, the contact back stop date is at April 1 2017, which calls for concern as the status of the project could be on thin ice. We understand the Group is in discussions with EnQuest to work towards achieving first oil before the deadline and would have the outcome in the near-term. Remaining status quo, the project should meet its first oil by 2QFY17.
- Maintain Outperform. For 2016, to recap we had already anticipated weaker results as the Group’s main earnings drivers are at completion stages of their conversion phases following the S-Curve progress billings. 2017 will see a boost in earnings from the 4 major FPSO & FGS contributions, hence we maintain our Outperform call with an unchanged TP of RM0.90 based on our 10-year DCF with a WACC of 6.2%.
Source: PublicInvest Research - 1 Mar 2017
ARMADA (5210) - BUMI ARMADA - Looking Forward To 2017
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