This article first appeared in The Edge Financial Daily on March 2, 2020

Bumi Armada Bhd
(Feb 28, 31.5 sen)
Maintain hold with a lower target price (TP) of 37 sen: Bumi Armada Bhd posted a net loss of RM235 million for the fourth quarter ended Dec 31, 2019 (4QFY19) compared with a net loss of RM1.26 billion for (3QFY18) due to a non-cash impairment loss of RM234 million (booked under cost of sales) related to the Woodside court case and vessels impairment of RM44 million. Normalised profit stands at RM10.3 million (-70% year-on-year [y-o-y]) after excluding other operating income of RM31.8 million.

To recap, last month the Supreme Court of Western Australia dismissed Bumi Armada’s case against Woodside Energy after the latter cancelled the Armada Claire floating production storage and offloading (FPSO) contract. The management will be appealing the judgement.

Its 4QFY19 revenue declined 11% y-o-y to RM515.6 million as the growth in floating production and operation (FPO) (+10% y-o-y to RM419.5 million) was unable to cushion the decline in offshore marine services (OMS) (-51% y-o-y) to RM96.1 million.

Compared to the previous quarter, its 4QFY19 normalised net profit dropped 86% quarter-on-quarter (q-o-q) on the back of a 2% q-o-q revenue decline as FPO revenue declined 8% q-o-q (due to the lower charter revenue from Armada Kraken FPSO) but on the bright side, OMS revenue increased 30% q-o-q.

Its order book remains healthy at RM17.5 billion (FPO: RM16.6 billion, OMS: RM900,000) with another RM9.8 billion worth of potential extension. This will sustain the group’s revenue for the next few years.

The 2019 normalised net profit of RM194.3 million (-10% y-o-y) achieved 73% of our full-year forecast of RM2.66 billion while the 12-month revenue dropped 14% y-o-y to RM2.07 billion and achieved 90% of our FY19 forecast. We are lowering our revenue and earnings per share forecasts for FY20 by 19% and 19.5% respectively.

We maintain “hold” with a lower TP of 37 sen (previously 50 sen) based on its base three-year average price-to-book value, which is reduced from +1 standard deviation due to lower oil prices and cautious outlook for the oil and gas industry. — JF Apex Securities Bhd, Feb 28