Bumi Armada (BAB) recorded core net profit of RM221.7m in 4QFY22, growing by 54.7% YoY and contributed by an increase in revenue of 19.7% YoY. Cumulatively, BAB reported core net profit of RM843.5m (+25.4%) for FY22, surpassing our and consensus’ expectations at 110% of full-year FY22 estimates. The performance was underpinned by the progress of subsea construction work in the Caspian Sea and higher vessel availability for Armada Kraken FPSO in FY22 as compared to FY21. We are positive on the Group’s continuous de-leveraging strategy, which would mitigate increasing financing costs and provide financial strength to secure major FPSO contracts in future. We revise our FY23F & FY24F earnings forecasts higher by 10% & 7% respectively to reflect its de-leveraging effort, as well as higher contributions from its JVs. We maintain our Outperform call and raise our sum-of parts derived TP to RM0.75 (from RM0.61 previously).

• Results highlight. The Group recorded lower revenue in 4QFY22 by 7.4% QoQ to RM605m. This is due to lower progress of subsea construction work in the Caspian Sea and lower revenue from preliminary front-end engineering and design (Pre-FEED) works. However, the decrease in revenue was offset by higher contribution from its JVs, Armada Olombendo FPSO after the revision of residual value and extension of useful life in 3QFY22 and the reversal of withholding tax expense in 4QFY22. Overall, the Group reported core net profit of RM221.7m, just slightly higher by 1.1% QoQ.

• Continuous de-leveraging. The Group continues to de-leverage its balance sheet with the leverage ratio (debt-to-equity) now at 1.08x in 4QFY22 from 1.22x in 3QFY22, after it repaid RM567m of borrowings during the quarter. Despite the huge repayment, the Group is still able to book cash position of RM839m. Assuming the Group is generating operational cashflow of RM1.3bn per year, we believe the current cash position provides a healthy buffer to meet its loan repayment obligations which is around RM1bn-1.5bn per year. Additionally, the continuous de-leveraging will mitigate the increasing financing costs amidst a hawkish interest rate environment.

• Outlook. We believe the Group’s core FPSO business remain robust on the back of stable operations at close to 100% uptime, which provides confidence to the Group on potential extension of the expiring FPSO TGT 1, and the annual optional extension of FPSO Kraken. We also believe BAB’s deleveraging strategy and the divestment of Offshore Support Vessel (OSV) would undoubtedly result in greater financial strength for the Group to secure major FPSO contracts in the future.

Source: PublicInvest Research - 27 Feb 2023