Maybank Research retains Buy for Bumi Armada

KUALA LUMPUR: Maybank Investment Bank Research has a Buy call on Bumi Armada with a lower target price of RM1.20, which is still an upside of 40% from the last traded price of 86 sen.

It said on Friday that losses at the offshore support vessel (OSV) and transport and installation (T&I) operations dragged down 1H15 earnings while floating production storage and offloading (FPSO) continues to deliver to expectations.

“Cut 2015-17 earnings by 11%-53%, largely on losses at OSV and T&I operations. Execution of four conversion jobs on track. Cut sum-of-parts based TP to RM1.20 (-25%), anchored by FPSO operations, with nominal contributions from OSV and T&I,” it said.

Maybank Research said that headline 2Q15 net loss of RM292mil included RM331mil in exceptional loss, largely made up of (i) a substantial RM354mil non-cash impairment charge on OSV (RM249mil) & T&I (RM105mil; Armada Hawk & Condor) assets held for sale and (ii) RM77mil forex loss, which offset derivatives gain of RM93mil.

“Excluding that, Bumi Armada reported a core net profit of RM39mil (-53% on-quarter; -57% on-year), taking 1H15 core earnings to RM 123mil (-23% on-year), accounting for 29%/31% of our/consensus full-year forecasts,” it said.

EBIT losses at its OSV (-RM 23 mil) and T&I (-RM 6 mil) operations in 2Q15 were the key culprits to the poor performance. The former was affected by low utilisation (50%-57% in 2Q15 vs. 66%-73% in 1Q15) while the latter was affected by lower workscope (-47% on-quarter).

Armada Hawk and Condor were off-hire. FPSO operations were the only bright spot, a constant key contributor to Bumi Armada, with a higher EBIT of RM100mil in 2Q15 (+18% on-quarter).

“The kitchen sinking exercise is prudent in our view. Our cut in earnings largely reflect EBIT losses at both the OSV and T&I divisions in 2015-17. We see these two segments as the most challenging in Bumi Armada’s operating portfolio.

“Its FPSO division will continue to fuel earnings. While its four conversion projects (Kraken, Madura, Angola and Malta) are on track; a successful execution is key. We do not rule out further impairment on its OSV/T&I operations, which carry RM948mil/RM41mil in outstanding values,” it said.