KUALA LUMPUR: RHB Research reiterated its “buy” recommendation on Bumi Armada Bhd on improved earnings and cash flow visibility, underpinned by stable FPSO contributions masking weaker offshore marine service weakness.
It said the group’s risk-reward profile looks attractive as the current 5.2x FY21 price-earnings and 0.5x FY20 price-book value reflects an elevated 2.6 net gearing as at 3Q20.Bumi Armada could see higher FPSO earnings in 4Q20 on higher contributions from Armada Kraken following the completion of the scheduled maintenance procedure in September.
“We expect this vessel to deliver a stable performance, and any planned and scheduled maintenance in 2021 should fall within the allowable maintenance days.
“That said, management still does not anticipate any asset write-back to be made in the near term, with regards to Armada Kraken, ” said RHB.
Meanwhile, it said the OMS segment is expected to face headwinds in 4Q20 due to the absence of sub-sea work orders and potentially lower OSV utilisation rates due to the monsoon season.
However, OSV contributions could improve in 2021 on higher vessel demand on drilling and related projects as Bumi Armada pushes for better spot charter rates.
“Our TP rises to MYR0.43, after narrowing the Kraken’s DCF valuation discount to 10% (from 20%) in view of better vessel stability.
“Our new TP implies 6.4x FY21F P/E and 0.6x FY21F P/BV, ” it added.
RHB’s base case assumpton is that Bumi Armada will refinance the borrowings due in May so no equity fund-raising would be required.
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