Affin Hwang maintains 'Buy' on Bumi Armada, TP at 62 sen

  • Analyst Reports
  • Monday, 25 Nov 2019

KUALA LUMPUR: Underpinned by an improving outlook in the offshore marine services (OMS) segment and the resolution of operational issues with the FPSO Kraken, BUMI ARMADA BHD may be looking at brighter earnings prospects moving forward.

The group recently announced a better-than-expected 3Q core net profit of RM87mil as the OMS segment reported a profit turnaround and JV profit increased from a tax exemption.

“The OMS segment turned profitable in 3Q19 vs a RM11m loss in 2Q19 as OSV utilisation rate improved from 51% to 58%,” said Affin Hwang Capital research in a note.

The higher finance costs following the completion of a corporate debt restructuring exercise dampened earnings but following the disposal of FPSO Perdana, Affin Hwang expects the group's cost base to be lower by RM20mil per quarter moving forward.

According to the research house, Bumi Armada currently has 32 vessels after disposing of five vessels in 3Q.

It is also deploying another unit to Malaysia on top of the 12 units currently operating due to improving domestic activities and better rates.

Bumi Armada has also resolved the issue with the FPSO Kraken's water filtration earlier than guided for 2020, and shared that not much rectification work will be needed moving forward.

Affin Hwang maintained its buy rating on Bumi Armada and raised its target price to 62 sen from 45 sen previously, after revising its earnings forecasts higher.

The research house added that the current two overhangs – the reclassification of the RM1.48bil Kraken debt, which should happen in the coming months, and the write-back of impairments – if lifted, should lead to a re-rating of the stock.

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