Bumi Armada’s 1H performance beats estimates, further value seen


BUMI Armada Bhd has more value to gain on expectations of improved earnings for the year despite its high debt level and potential earnings disappointment from selected operations.

JF Apex Securities Bhd analyst Lee Cherng Wee said the offshore oilfield service provider’s normalised net profit of RM145.9 million for the first half of 2019 (1H19) was 36% higher year-on-year (YoY) and made up 72% of the research firm’s full-year forecast.

Revenue in the same period comprised 38% of JF Apex’s forecast for the company’s fiscal year ending Dec 31, 2019 (FY19), he said.

“We are raising our earnings per share forecast for FY19 and FY20 by 55% and 17% respectively, following the improved efficiency and profit margins, but keeping our revenue estimates,” he wrote in a research report yesterday.

The company has a ‘Buy’ call for the stock at a higher target price (TP) of 50 sen, double yesterday’s close of 25 sen based on a plus one standard deviation (+1SD) to its three-year average price-to-book ratio.

“Risks remain on its high debt and gearing level despite the recent refinancing,” he wrote, adding that the potential upside catalyst for the company is the possible compensation of US$280 million (RM1.18 billion) from the ongoing Armada Claire court case in Australia.

Bumi Armada is claiming the amount against Australia’s Woodside Petroleum Ltd for the premature contract termination of its vessel, with a ruling expected in the fourth quarter (4Q) of this year.

On April 24, Bumi Armada refinanced its unsecured term loans of US$380 million and revolving credit facilities of US$280 million into a single facility to better align its corporate debt profile with the cashflow of the group’s main floating production and operation (FPO) business.

The company will also seek out additional value via asset monetisation which will see idle FPO vessels and offshore marine services (OMS) assets sold, if commercially acceptable sale terms are secured.

Bumi Armada’s total liabilities remained high at RM11.59 billion as of 1H19 against a total asset base of RM14.92 billion.

Nonetheless, investors were positive on the total US$660 million refinancing exercise with the company’s shares hitting a year-high of 27 sen on April 24 this year after the refinancing was announced.

Hong Leong Investment Bank Bhd also has a ‘Buy’ rating on Bumi Armada at a higher TP of 34 sen after raising the company’s FY19 to FY21 earnings forecast by 5% on higher imputed earnings contribution from its joint-venture floating production sto- rage and offloading (FPSO) assets.

“Post earnings adjustment, we are keeping our ‘Buy’ rating on the stock with higher sum-of-the-parts-driven TP of 34 sen per share (from 33 sen previously),” its analyst Sheikh Abdullah wrote in a report yesterday.

The TP of 34 sen has implied FY19 price-to-earnings of eight times and FY19 price-to-book of 0.6 times, which is slightly above -1SD of its three-year mean.

The analyst said downside risks to the assessment include earnings disappointment arising from the company’s Kraken operations in UK’s East Shetland basin and significantly highly dilutive cash calls.

Bumi Armada, for its 2Q ended June 30 this year, posted a RM78.21 million net profit against a net loss of RM585.48 million in 2Q18, despite revenue falling 18.1% year-on-year (YoY) to RM535.64 million.

This was achieved largely due to the absence of impairment losses for 2Q19 as opposed to RM478.94 million in impairments recognised in 2Q18.

Turnover for 2Q19 was down due to weaker contributions from the FPO and OMS divisions.

Against the immediate preceding quarter, FPO revenue rose on higher contributions from the Armada Kraken FPSO and Armada Olombendo FPSO, while turnover from the OMS business increased on improved offshore support vessel (OSV) utilisation at 51%.

For 1H19, Bumi Armada registered a net profit of RM140.42 million against a net loss of RM537.06 million in 1H18, while revenue came in lower at RM1.03 billion — down 17.6% YoY.

Bumi Armada is the first and largest FPSO in Malaysia. According to the company’s latest annual report, it operates five wholly owned FPSOs, three jointly owned FPSOs and one liquefied natural gas floating storage unit.

Its OMS business, meanwhile, runs a fleet of 47 vessels, comprising 44 OSVs and three subsea construction vessels.

The company’s orderbook in 2Q19 was RM18.9 billion, with additional optional extensions of up to RM9.9 billion, providing it with strong earnings visibility going forward.