GEORGE TOWN (Aug 28): Bumi Armada Bhd’s share price headed south again after the release of its quarterly financial results with a whopping impairment charge that dragged the group in net loss of RM292 million its second quarter ended June 30, 2015 (2QFY15).
Analysts slash their target price (TP) for the stock to an average of 90 sen in view of the latest earnings numbers and the gloomy outlook of the oil and gas industry.
Analysts who track the stock most have a “hold” call on Bumi Armada Bhd, which share price hit a record low of 78.5 sen, dropped two sen or 2.33% to 84 sen at the close of the morning trading session.
In a note today, AmResearch downgraded its rating on the stock to “hold” with a lower fair value of 90 sen from RM1.50 as it assigned a larger discount of 40% on its sum-of-parts (SOP) to reflect the weakness and uncertain outlook on the sector, and especially in the offshore support vessel (OSV) and transportation and installation (T&I) front.
Both Alliance DBS Research and Affin Hwang IB Bhd maintained “hold” with a lower TP of 90 sen from RM1.15, and 91 sen from RM1.24, respectively.
“While we like to Bumi Armada for its strong footing in the resilient floating, production, storage and offloading (FPSO) market, the weak global oil and gas capex outlook and heightened counter party risk due to low oil price will likely cap its upside potential,” Affin Hwang said.
However, some analysts are upbeat on the group’s RM25.8 billion order book that would continue generating steady earnings for Bumi Armada.
Public Invest Research maintained its “outperform” recommendation despite the uncertainty, which saw the conservative adjustment of its estimates for the financial year 2015 forecast leading to a lower TP to RM1.08 premised on its discounted cash flow approach.
“We do however believe the performance of the FPSO division would provide steady long-term cashflows and RM25.8 billion firm order book as at second half of 2015 coupled with additional RM13.3 billion of optional extension reaffirms its long-term earnings sustainability, thus maintain our outperform recommendation,” it said in a note.
JF Apex Securities made a “buy” call with a lower TP of RM1.14 from RM1.50 based on a steady order book of RM25.8 billion that would sustain earnings for the next few years with FPSO contracts ranging from four to 12 years.
“The group incurred retrenchment cost of RM20.6m earlier this year and expects to save RM65m a year starting 2H15 following its cost reduction and capital budgeting measures,” it noted.
Yesterday, Asia’s leading OSV provider, Bumi Armada posted a net loss after it booked a whopping impairment charge of RM383.7 million.
Quarterly revenue dipped 22.2% to RM459.08 from RM590.08 million last year, primarily due to lower utilisation of vessels under the OSV and T&I business units, Bumi Armada (fundamental: 1.05; valuation: 1.4) said.
However, the group said that excluding the impairment charge, it would have posted an adjusted net profit of RM84.8 million, compared with RM98.38 million in the previous corresponding quarter.
The impairment charge was made pursuant to MFRS 136 “impairment of assets”, and relates mainly to the write-down of the carrying value of certain vessels in the T&I and OSV business units and a non-core asset held at a joint venture, in light of the weak outlook for the oil and gas sector, Bumi Armada said.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)