ARMADA (5210) - Bumi Armada - Operational Efficiencies Bearing Fruit

• Bumi Armada’s (BAB) 2QFY17 reported profit more than doubled on qoq basis to RM116.4m

• Minimal impairments recorded for 6MFY17

• Earnings exceeded expectations

• Firm orderbook stands at RM23.7b

• OSV utilisation rate in 2QFY17 rose to 52%

• Maintain NEUTRAL (with positive bias) with revised TP of RM0.85 per share

Earnings exceeded expectations. BAB’s 2QFY17 reported earnings more than doubled on a quarterly sequential basis to over RM116m. The stark increase in earnings is premised on a steep rise in 2QFY17 revenue by +72.4%yoy to RM694m – highest in three years. Cumulative 6MFY17 earnings of RM164.7m exceeded our and consensus expectations by a variance of more than +10%. The surge in profitability is driven by both the FPO and OMS segments.

Healthy operating cash flow. Cash flow generation is still healthy with net cash balance of RM1.8b as at end-2QFY17. The yoy decline (end-2QFY16 of RM2.2b) is largely due to timing differences of its receivables and payables.

FPO (previously FPSO & FGS) segment. Segment revenue and profit increased by +116.9%yoy and +625.3%yoy respectively. The commendable results are attributable to higher contribution from Armada Olombendo FPSO and Armada LNG Mediterrana FSU. The prospects for BAB’s FPSO are clearing up as it registered a total uptime of 99% across its FPSO fleet.

OMS segment. The Offshore Marine Segment (OMS), an amalgamation of the offshore support vessel (OSV) and Transport & Installation (T&I) segments also posted commendable rise in revenue of +44.3%yoy while registering a profit of RM111.9m compared with a loss a year earlier. The commendable earnings are a result of a oneoff revenue recognised based on work completed on the LukOil project arising from signing of the supplementary agreement and also higher OSV utilisation rate of 52% for the quarter.

Impact on earnings. Based on the increasingly buoyant outlook for the company, we are revising our FY17 and FY18 earnings by +14.8% and +20.8% respectively.

Orderbook. The company’s latest orderbook as at 30 June 2017 stands at RM23.7b compared with RM23.9b as at 31 March 2016. 93% of the orderbook consists of FPO contracts (RM22b) while the remaining 7% are OMS jobs (RM1.7b). The optional extension orderbook stands at RM13.3b.

Maintain NEUTRAL. We are maintaining our NEUTRAL (with positive bias) recommendation on BAB with a revised target price of RM0.85 per share. Our valuation is based on PER18 of 15x pegged to EPS18 of 5.7sen. Although the prospects for the company is looking slightly more positive, we believe that there are still macro challenges ahead for this capital intensive sub-segment of the oil and gas value chain.

Source: MIDF Research - 28 Aug 2017

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