Bumi Armada’s high borrowings a concern

by NUR HAZIQAH A MALEK / pic by MUHD AMIN NAHARUL

BUMI Armada Bhd’s net profit fell 44.2% to RM85.62 for the third quarter ended Sept 30, 2020 (3Q20) from RM119.8 million posted last year due to lower revenue from its Armada Kraken FPSO and foreign-exchange (forex) losses arising from translation of fixed deposits and inter-company balances denominated in foreign currencies, which were offset by improved offshore support vessel (OSV) utilisation year-to-date (YTD).

Kenanga Investment Bank Bhd analyst Steven Chan said the 3Q20 results are weaker on a quarter-on-quarter basis on a core earnings basis after stripping off one-off items such as impairments, unrealised forex, re-measurements and others.

This was mainly due to lower vessel availability for Armada Kraken FPSO, as the floating production storage and offloading (FPSO) saw some planned maintenance shutdown during the quarter.

“What’s worth mentioning is the company’s high borrowings level which may pose as a concern to potential investors,” he told The Malaysian Reserve.

He added that the company carries in its books short-term debt of RM1.66 billion, versus cash of only RM923 million.

Bumi Armada CEO Gary Christenson said despite certain operational and logistical difficulties, the company maintained excellent health, safety and environment performance in the quarter with zero lost-time injuries.

“We are also pleased to be able to announce that our joint-venture (JV) company, Armada D1 Pte Ltd, received a notification of award from Oil and Natural Gas Corp Ltd for a new bareboat charter lease for the Armada Sterling FPSO off the west coast of India.

“We will continue to take a prudent approach and focus on safety, sustainability, operational excellence and financial discipline,” he said.

Against the previous quarter, the floating production and operations segment reported lower revenue on lower vessel availability for Armada Kraken FPSO on planned shutdown in September, while its offshore marine services business marginally improved in 3Q on higher OSV utilisation.

The group’s operating profit before impairment declined to RM222.1 million versus RM246.6 million in the previous quarter, reflecting the reduced revenue earning.

Meanwhile, for the year-on-year performance, Bumi Armada’s operating profit before impairment declined despite an increase in revenue from higher depreciation on revision of vessels’ useful lives and residual values, as well as gain on disposal of JVs and property, plant and equipment in the last year.

As of the end of the quarter, the future firm orderbook amounted to RM17.2 billion with additional optional extensions of up to RM10 billion.

On a YTD basis, Bumi Armada recorded a net loss of RM18.58 million against the previous year’s net profit of RM293.79 million, despite higher revenue of RM1.72 billion for the current year versus RM1.56 million in 2019.