Smooth cruise ahead - BUMI ARMADA

by **Cals** Thu 22 Aug 2013, 10:26

Smooth cruise ahead
Business & Markets 2013
Written by Affin IB Research
Thursday, 22 August 2013 09:54

Bumi Armada Bhd
(Aug 21, RM3.96)
Maintain add at RM3.75 with a target price of RM4.40: Bumi Armada reported a strong net profit of RM221.6 million (+22% year-on-year [y-o-y]) for the first half of 2013 financial year (1HFY13), driven by a higher revenue (+34.8% y-o-y), lower finance cost and a lower effective tax rate of 11.5% (from 16.8%).

1HFY13 revenue was higher across all major divisions: (i) Floating production, storage and offloading (FPSO) (RM386 million, +14% y-o-y) was driven by higher operations and maintenance (O&M) revenue related to client variation orders and additional revenue from tanker vessels held as FPSO conversion candidates; (ii) Offshore support vessels (OSV) (RM293.2 million, +24.3% y-o-y) driven by additional vessels and higher fleet utilisation; and (iii) Transportation and installation (T&I) (RM290.7 million, +104% y-o-y) due to ramp up of activity in the LukOil project and higher utilisation of the Armada Hawk.

While the group's 1HFY13 net profit accounts for only 43% of consensus' and 40% of our full year earnings forecast, we deem the results as in line. We expect Bumi Armada to report stronger 2H earnings, driven by new FPSO contract(s) (possibly Kraken in the North Sea and Madura in Indonesia) and stronger OSV earnings on contributions from new vessels.

Sequentially, Bumi Armada's second quarter (2Q) of FY13 net profit was marginally stronger at RM112 million (+2.1% quarter-on-quarter [q-o-q]) largely due to a lower effective tax rate of 7.1% (versus 15.7% in 1QFY13). 2QFY13 pre-tax profit fell by 6.1% q-o-q due to lower earnings before interest and tax (ebit) (-3.8% q-o-q) and lower associate/jointly controlled entity (JCE) earnings.

Bumi Armada's order book remained strong at RM7.5 billion as at end-June 2013, comprising FPSO (RM5.2 billion), OSV (RM1 billion) and T&I (RM1.3 billion) contracts. Adding the RM567.5 million LukOil contract secured on July 5, 2013, its order book would swell to about RM8 billion. We understand that Bumi Armada is the front runner for the Madura FPSO contract. For the Kraken contract, it is facing competition from Teekay Petrojarl of Norway.

We maintain our earnings forecast, “add” rating and target price of RM4.40 based on 19 times 2014 calendar year earnings per share.

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We continue to like Bumi Armada for its integrated business model, strong management, wide international footprint and positive long term FPSO market outlook. Key rerating catalysts include winning new FPSO and/or oilfield supplies contracts (marginal fields development, enhanced oil recovery projects). — Affin IB Research, Aug 21

This article first appeared in The Edge Financial Daily, on August 22, 2013.