Bumi Armada (BAB)’s quarter one 2023 results are in line with RHB Research (RHB)’s expectations, with core profit growing by 16% year-on-year.
The group is still actively bidding for new jobs, and is comfortable executing 1-2 projects with its partner. RHB continues to like the company for its attractive valuation and strengthening balance sheet, led by stable floating production storage and offloading (FPSO) operations and consistent debt repayment.
At 26% and 25% of RHB and Street full-year estimates, BAB’s quarter one 2023 earnings of RM204 million are within expectations. No dividends were declared for the quarter, as expected, said RHB in the recent Malaysia Results Review Report.
Quarter one 2023 core profit improved by 16% year-on-year due to higher engineering services charged to its jointly-owned FPSO and higher interest income.
This has masked higher finance costs. On a quarter-on-quarter basis, quarter one 2023 core earnings contracted by 6% on lower JV and associate contributions and higher tax expenses.
BAB continued to deliver stable operating cash flow of RM288 million in quarter one 2023, backed by a good operating performance across all the FPSOs and floating storage units. Its subsea assets, Armada Installer and Armada Constructor, are currently in lay-up mode and undergoing regular maintenance works.
BAB is pursuing new jobs in the Caspian Sea. Meanwhile, it also repaid USD110 million in borrowings in quarter one 2023, lowering its net gearing to 0.82x in quarter one 2023.
Armada Sterling V FPSO, which is under India’s Oil and Natural Gas (ONGC) KG-DWN 98/2 project is now ready to commence commissioning, upon the provision of first oil by ONGC.
BAB is in talks with the client over the potential standby rate payment. Meanwhile, it has submitted tenders for new FPSO projects and is comfortable to take on 1-2 projects together with its partners.
RHB suggests to keep BUY. Downside risks identified by RHB are the contract cancellations, failure to win new contracts, and a deterioration in Armada Kraken’s operations.
