KUALA LUMPUR: AmInvestment Research is maintaining its Hold recommendation on Bumi Armada with an unchanged fair value of 79 sen a share based on a 20% discount to its sum-of-parts (SOP) valuation of 99 sen a share.
It said on Thursday Bumi Armada’s FY17F-FY19F earnings were maintained even though the group’s 1QFY17 core net profit of RM88mil, excluding unrealised forex loss of RM40mil, appears to be above expectations, accounting for 32% of its FY17F earnings and 31% of consensus.
“While the group’s earnings from 2QFY17 onwards could potentially improve from the full recognition of the floating production storage and offloading (FPSO) vessel Armada Olembendo, which achieved first oil on Feb 8 this year, we remain cautious on the company’s near-term earnings trajectory given the uncertain penalties which could arise from the delays in the commencement of the FPSO Kraken’s contract,” it said.
Recall that some of Kraken’s undisclosed late delivery provisions were only up to the backstop date of April 1, 2017 which was later extended to July 1, this year. The backstop date gives the client the right to terminate the charter.
“With penalties potentially accruing at US$6mil/month, negotiations are still unresolved with the client Enquest,” it pointed out.
Currently, Bumi Armada aims to reach first oil for the North Sea-based Kraken project in 2Q2017, which is still another month away.
“Given the past earnings disappointment, the group needs to convincingly navigate past its 2QFY17 results to reach its re-rating inflection point,” noted the research house.
AmInvestment Research said on a normalised comparison, Bumi Armada group turned around from a loss of RM153mil in 4QFY16 to a 1QFY17 net profit of RM88mil.
This stemmed mainly due to the maiden contribution from the Angola-based Armada Olembendo, which achieved first oil on Feb 8 this year, as well as LNG Mediterrana floating storage unit together with the improved offshore marine services (OMS).
“While there were some late delivery provisions for the Kraken FPSO, which we understand were lower than the undisclosed sums provided in 4QFY16, the higher revenue recognition contributed to a 1QFY17 FPSO EBITDA rebound of RM69mil vs. a 4QFY16 loss of RM166mil.
“The results were further supported by OMS turning around from a loss of RM75mil to an earnings before interest and tax (EBIT) of RM8mil. This is despite an 18% drop in OMS revenue in tandem with a seasonally lower LukOil installation activities in the Caspian Sea together with a six percentage point drop in vessel utilisation rate to 43%.
"The stronger OMS earnings came from the absence of impairments coupled with lower depreciation and operating costs.
“Any improvement in OSV utilisation, currently with charter rates just above EBITDA breakeven levels, will be gradual against the backdrop of prevailing oil price.
“The stock currently trades at a fair FY17F PE of 16 times vs. the sector’s 20 times due to lingering risks on 2HFY17 earnings recovery,” said the research house.
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