INVESTORS are at a decision-making crossroads with respect to Bumi Armada Bhd’s performance and are wondering if losses could mount further or if this could indeed by the end of the worst for the group.
The group had recently announced a third quarter loss which had considerably widened by some 238% from a net profit position of RM70mil in the same quarter a year ago with revenue having declined by some 33%.
Bumi Armada’s year to date (YTD) performance have also been dismal with it going deeper into the red as YTD net losses almost quadrupled to RM591.6mil.
The development after Bumi Armada released its earnings saw investors selling down its shares and mostly ignoring two upgrades to ratings which were issued by two research houses after Bumi Armada’s quarterly results were announced.
Bumi Armada had surprisingly received two upgrades from analysts after its recent results were announced.
RHB Research and JF Apex Securities both upgraded the stock to a “neutral” and buy respectively.
Interestingly, sentiment in the international offshore oil field services provider have not recovered in line with oil prices.
It continues to tank and is presently hovering near its historical lows of 50 sen.
Bumi Armada did get a little respite though, from Opec’s decision to cut output last week and its shares have recovered slightly after tanking in the beginning of last week.
Also to note that while fundamentals of the sector as a whole may not have caught up with the recovery in oil prices, some analysts have started to recommend Bumi Armada to their clients.
Other analysts were not so sure though as it is still unclear if Bumi Armada would indeed start to see an improvement in its earnings in the near term and also questioned if the whole business model of offshore oil processing was really viable at this point in time.
According to a Bloomberg poll, some 55% or a slight majority of analysts have told their clients to buy Bumi Armada while another 40% were “neutral” on the stock and the remainder had a sell stance.
While analysts are already upbeat, investors do not seem to be so keen to accumulate the stock just yet waiting for a clearer picture on the oil price trend to first emerge and for losses at Bumi Armada to first abate.
Affin Hwang Capital Research in its report also noted that this was the weakest quarter ever with first time losses at the core level for Bumi Armada with a core net loss of RM6mil, which dragged down the nine months to date core net profit to RM92.5mil.
Despite the upgrade (to buy with target price of 91 sen), JF Apex in its report still noted that Bumi Armada’s results came in below expectations with the nine months to date normalised net loss of RM12.9mil coming in below its expectation of full year net profit estimate at RM228.9mil.
“We are slashing our financial year 2016 (FY16) net profit and sales forecasts by 33% and 30% respectively as the newly completed floating production, storage and offloading (FPSOs) will only start contributing significantly in FY17 after reaching their respective oil fields,” it said.
The research house however said that the company had a solid orderbook at RM24.1bil with another RM12.9bil worth of potential extensions.
“This will sustain the group’s earnings for the next few years with FPSO contracts ranging from four to 12 years.
Going forward, Bumi Armada is eyeing several new FPSO jobs to replenish its order book, namely ONGC Kakinada (India), Repsol CRD (Vietnam), Eni Zaba Zaba (Nigeria), Hess (Ghana) and Petrobras Sepia (Brazil),” JF said.
JF’ Apex’s upgrade was based on a premium price to earnings valuation of 15 times for FY17 given its the company’s huge orderbook and the FPSO sector that will keep Bumi Armada busy for the next few years.
Notably according to a report in August, the company also said that once four more new FPSO / FGS projects are operational that they will provide a positive change in its financial results from FY17.