Bumi Armada’s 9MFY12 results were within our expectations but below consensus’, accounting for 68.8% of our and 59.8% of consensus full-year estimates. Sequential earnings were up marginally by 3.4% but on a y-o-y basis, earnings grew 17.8% due to higher margins from its new FPSO and OSV vessels coupled with additional T&I contracts. It expects its OSV business to remain stable next year and is looking to secure new FPSO contracts very soon. Despite the slower-than-expected contract delays for its FPSO business, we are retaining our BUY call on Bumi Armada, with an unchanged fair value (FV) of RM4.35.
Within expectations. Bumi Armada’s 9MFY12 results came in within our but below consensus expectations, accounting for 68.8% and 59.8% of our and consensus full-year estimates respectively. Nonetheless, earnings swelled by 17.8% y-o-y although revenue grew marginally by 0.7% due to a massive 98.2% plunge in revenue contribution from its oil field development (OFD) business. Nonetheless, revenue growth from its floating, production, supply and offloading (FPSO), offshore support vessel (OSV) and transportation and installation (T&I) businesses, which grew 22.1%, 11.7% and 37.7% y-o-y respectively, managed to offset the weaker OFD performance. The stronger-than-expected earnings were due to stronger operating profits (EBITDA margin: 60% YTD 2012 vs 50% for the corresponding period last year) as a result of higher margins from its new FPSO and OSV vessels, coupled with additional T&I contracts.
Within expectations. Bumi Armada’s 9MFY12 results came in within our but below consensus expectations, accounting for 68.8% and 59.8% of our and consensus full-year estimates respectively. Nonetheless, earnings swelled by 17.8% y-o-y although revenue grew marginally by 0.7% due to a massive 98.2% plunge in revenue contribution from its oil field development (OFD) business. Nonetheless, revenue growth from its floating, production, supply and offloading (FPSO), offshore support vessel (OSV) and transportation and installation (T&I) businesses, which grew 22.1%, 11.7% and 37.7% y-o-y respectively, managed to offset the weaker OFD performance. The stronger-than-expected earnings were due to stronger operating profits (EBITDA margin: 60% YTD 2012 vs 50% for the corresponding period last year) as a result of higher margins from its new FPSO and OSV vessels, coupled with additional T&I contracts.
Sequential earnings up by 3.4%. Despite growing its revenue by 20.0% q-o-q, earnings crept up by a marginal 3.4%, mainly attributable to foreign exchange losses on translation and derivatives of RM5.6m in the current quarter (compared to a gain of RM9.6m in the preceding quarter) and a 28.0% decline in associate contributions due to a one-off staff cost billed to an associate company in Nigeria. The stronger-than-expected revenue was largely attributable to: i) higher uptimes across its FPSO fleet, ii) improved uptime and additional new tonnage (Armada Tuah 107, Armada Tuah 108, Armada Tuah 301 and Armada Tuah 302) in its OSV business, and iii) a higher revenue contribution from its T&I business due to its LukOil contract and additional charter of the Armada Installer with Momentum Engineering.
Maintain BUY. All in, we are maintaining a BUY recommendation on Bumi Armada in anticipation of at least two more FPSO contract wins next year, and more non-FPSO contracts. Our FV for the stock remains unchanged at RM4.35 based on our sum-of-parts valuation. It implies a 23.5x PE over its FY13 earnings, which we deem fair given that it deserves a premium valuation, as over 70% of its business provides recurring income and constant cash flow.
Armada Sterling ready to take on the Indian Ocean. We also recently visited Bumi Armada’s FPSO, the USD360m Armada Sterling (see Figure 1), which is now in the Keppel shipyard in Singapore. The visit was hosted by Jonathan Duckett, Bumi Armada’s senior vice-president of corporate planning, and was attended by a combination of sell-side analysts and fund managers. To recap, the Armada Sterling is one of Bumi Armada’s five FPSO vessels that will serve ONGC in India on the D1 marginal field located 200km offshore from Mumbai. The contract, worth USD620m (RM1.9bn) over seven years, comes with the option of annual extensions of up to six years. We remain upbeat on the prospects of the company to secure more projects in India moving forward as it has managed to complete this project ahead of time despite experiencing technical challenges along the way.
More FPSO contracts in the pipeline. Bumi Armada is tendering for six more FPSO contracts (two in Malaysia and one each in India, Nigeria, Indonesia and the North Sea) and contract awards have been weak YTD. The slower-than-expected contract rollouts are probably due to tighter financing in the global market which made many customers adopt a ‘wait and see’ attitude this year. Nonetheless, management remains upbeat and looks forward to securing some FPSO contracts (with a higher probability in Asia) very soon as FPSOs are still one of the most effective solutions in the oil & gas sector. We opine that Bumi Armada still stands a chance to secure awards from India’s Cluster 7, Malaysia’s Belud and Indonesia’s Madura this year while the others jobs will most likely be awarded only next year.
OSV market remains stable. Utilization rates for its offshore support vessels remain strong at 87% this quarter, compared to 82% in the preceding quarter, and this contributed to an increase in revenue q-o-q and y-o-y. Its management added in a conference call yesterday that charter rates are expected to strengthen, especially for assets which are good in quality. We understand that charter rates vary in different regions, with Brazil having the highest rates (close to USD3 per bhp) followed by Africa (USD2.2-2.3 per bhp) and Malaysia (USD2 per bhp).
Orderbook remains strong at RM7.3bn with optional extentions worth RM3.2bn. As at 30 Sept, Bumi Armada’s orderbook stood strong at RM7.3bn compared to RM7.6bn in the preceding quarter. The bulk of its orderbook consists of contracts for its FPSO business (62%) followed by OSV (16%) and T&I (22%) businesses. The total optional extension period orderbook remained the same compared to the preceding quarter at RM3.2bn.
OSV market remains stable. Utilization rates for its offshore support vessels remain strong at 87% this quarter, compared to 82% in the preceding quarter, and this contributed to an increase in revenue q-o-q and y-o-y. Its management added in a conference call yesterday that charter rates are expected to strengthen, especially for assets which are good in quality. We understand that charter rates vary in different regions, with Brazil having the highest rates (close to USD3 per bhp) followed by Africa (USD2.2-2.3 per bhp) and Malaysia (USD2 per bhp).
Orderbook remains strong at RM7.3bn with optional extentions worth RM3.2bn. As at 30 Sept, Bumi Armada’s orderbook stood strong at RM7.3bn compared to RM7.6bn in the preceding quarter. The bulk of its orderbook consists of contracts for its FPSO business (62%) followed by OSV (16%) and T&I (22%) businesses. The total optional extension period orderbook remained the same compared to the preceding quarter at RM3.2bn.
Source: OSK
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