Bumi Armada downgraded to ‘Sell’ on flattish earnings growth forecast

BUMI Armada Bhd has retained its earlier call at most equity research houses after releasing its latest quarterly result except for a downgrade to ‘Sell’ at Maybank Investment Bank Group (Maybank IBG).

In a note last Friday, Maybank IBG Research moved its call for the counter from an earlier ‘hold’ with a 52-week target price of 58 sen, down from 66 sen. The stock ended last Friday’s trading at 64 sen and was trading at 63.5 sen at 3.30pm today. Its 52-week high was at 71.5 sen.

In an exchange filing last Friday, Bumi Armada posted a net profit of RM201.01 million for the first quarter ended March 31, 2023 (1Q23), up 8.2% from the same period a year earlier. Its quarterly revenue was up 2.8% to RM544 million mainly due to revenue from the operations segment increasing marginally from year-to-date 2022 to year-to-date 2023.

In the report, Maybank IBG said Bumi Armada’s turnaround story — de-gearing sustainably, improving cash flows and monetising non-core assets — continues to gain traction, but these positives have been priced in.

“Bumi Armada’s strategy to constantly generate positive free cashflow (FCFs) while keeping opex in check is showing results (net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) of 3x is firmly below the 6-year weighted average of firm charter) while monetizing non-core assets remain its key performance indicators (KPI)s. Bumi Armada will also seek to refinance its US dollar loans to further improve its cash flows,” it said.

Maybank IBG said most of the positives — the pursuit for higher earnings, lower gearing level and divestment of non-core assets — have been priced in.

“To catalyse growth and rerate, Bumi Armada needs to win a build, own and operate (BOO) floating production, storage, and offloading (FPSO) project,” the local research house said.

Moving forward, it said while securing an engineering, procurement and construction (EPC), FPSO job will offer a mid-term earnings boost (three years; provided execution is on par, no delay in deliveries and/or minimal cost overruns), it is insufficient to catalyst growth in the longer term. FPSO chartering model typically offers visibility of steady cashflow.

In a separate report, also released on Friday, Apex Securities Bhd maintained its ‘Hold’ call for the counter with an unchanged target price of 61 sen, noting the company’s earnings momentum and continuous effort to lower gearing.

However, Apex Securities opined that the stock is fully valued at the moment and subject to rerating if it secures new FPSO contracts.

In another note last Friday, MIDF revised its target price to 83 sen, from 80 sen.

“Considering that Bumi Armada had achieved a reduction in GHG emissions by -2.5% and methane emission by 13.6% in CY22, we believe the group will shift its focus into green engineering solutions for current and new FPSOs and the liquefied natural gas (LNG) business. We remain sanguine on Bumi Armada’s prospects, on the basis of robust upstream operations globally,” it said.

Kenanga Research has also maintained the ‘Outperform’ call while CGS-CIMB Research has maintained an ‘add’ with a target price of 87 sen.

Armada is an international offshore oil field services provider. It is the first and largest FPSO in Malaysia and fifth in the world. — TMR