Keep BUY, with new SOP-based MYR0.62 TP from MYR0.57, 27% upside.
Bumi Armada’s 9M21 earnings beat expectations once again, thanks to the lower cost base and finance costs. RHB expect its balance sheet to improve on the back of healthy operating cash flow, led by stable FPSO operations and continuous asset monetisation.
At 88% of RHB’s and Street full-year estimates, 9M21 earnings of MYR528m (+75% YoY) beat expectations – largely due to the better than-expected floating production and operations and offshore marine services segments. No dividends were declared for the quarter, as expected.
3Q21 core profit fell 32% QoQ due to lower Kraken contribution as a result of an unplanned shutdown and absence of variation orders recognised in 2Q21. This is cushioned by narrowed losses from the OMS segment with lower operating costs amidst lower OSV utilisation of 69% (2Q21: 70%). YoY, 9M21 core earnings improved 75% on better Armada Kraken availability, management fees charged to its associate, and variation orders related to Armada Olombendo’s new wells tie-in.
Outlook. Armada Kraken experienced an unplanned shutdown in 3Q21 but has resumed to two trains operating. The company disposed four OSVs in 3Q21 and is left with 10 vessels as of end September – of which four vessels
are classified as Non-Current Assets Held-For-Sale. We are guided that the remaining balance of Tranche 1 Term Loan Facilities is USD87m with scheduled amortisation and final maturity is in Nov 2022. BAB is also looking to extend the repayment date of the USD30m shareholder loan from Usaha Tegas SB (UTSB) that is due in less than 12 months. Overall, operating cash flow in 9M21 improved 75% with better working capital management. Net gearing also dipped to 1.7x in 3Q21 (2Q21: 1.7x). The OMS segment numbers could improve with continuous monetisation of OSV while the construction vessels would still remain largely idle. Meanwhile, the ONGC’s KG-DWN 98/2 FPSO construction is at 70% completion and BAB is eyeing to complete it by Jun 2022.
Analyst- Sean Lim
RHB
