Bumi Armada upgraded to Buy on huge order book

UB Kay Hian Research maintains its Market Weight with Bumi Armada as its top pick

KUALA LUMPUR: JF Apex Research has upgraded Bumi Armada to a Buy with a higher target price of 91 sen on the strong order book for the international offshore energy facilities and services provider.

The research house had on Thursday rolled over its valuation to FY17 EPS pegged with a target price-to-earnings ratio (PER) of 15 times. 

“We think the premium PE valuation is warranted given its huge orderbook and long term prospects in the floating production storage and offloading (FPSO) business which could keep the company busy for the next few years. 

“Despite the potential upside in share price, near-term sentiment will remain challenged until earnings improvement kick in next year,” it said.

Following the release of its results on Wednesday, the share price tumbled to an all-time low of 60 sen.

To recap, Bumi Armada posted net losses of RM96.71mil in the third quarter ended Sept 30, 2016 compared with earnings of nearly RM70mil a year ago. Its revenue fell 32.5% to RM377.51mil from RM559.46mil a year ago. 

The company had cited the decline in revenue mainly due to a 68.2% fall in FPSO and floating gas solutions (FGS) revenue.

JF Apex Research said excluding the exceptional items, Bumi Armada posted a core net loss of RM12.9mil which was lower than core profits of RM57.1mil in 2Q16 and RM82.2mil in 3Q15.

Despite the cancellation of Armada Claire and reduced contribution from Armada Perdana and Armada Perkasa, Bumi Armada have delivered the Kraken (North Sea), Olombendo (Angola) and LNG (Malta). The Madura FPSO is expected to be delivered in 4Q16.

“Orderbook remains steady at RM24.1bil (FPSO: RM22bil, OMS: RM2.1bil) with another RM12.9bil worth of potential extension. 

“This will sustain the group’s earnings for the next few years with FPSO contracts ranging from four to 12 years. 

“Going forward, Bumi Armada is eyeing several new FPSO jobs to replenish its order book, namely ONGC Kakinada (India), Repsol CRD (Vietnam), Eni Zaba Zaba (Nigeria), Hess (Ghana) and Petrobras Sepia (Brazil),” it said.

JF Apex Research also said the 9M16 normalised net loss of RM12.9mil was below its expectation of full year net profit estimate of RM228.9mil. 
The 9M16 revenue also came below forecast after making up 55.8% of the full year forecast. 

“We are slashing our FY16 net profit and sales forecasts by 33% and 30% respectively as the newly completed FPSOs will only start contributing significantly in FY17 after reaching their respective oil fields. 

“FY17 EPS and sales forecasts are also reduced by 12.3% and 12% respectively to reflect the progress of the FPSO/FGS projects, which are expected to lift the company’s earnings significantly by 2Q17,” it added.