Bumi Armada Berhad - Returned to normalcy
Fri, 23-Aug-2024 07:25 am
by Research Team • Apex Research

Counter

ARMADA (5210)

Target Price (RM)

0.76

Recommendation

Buy

Summary

  • 2QFY24 core net profit jumped 121.9% yoy to RM241.5m and 1HFY24 core net profit at RM508.1m (+57.6% yoy) came in line at 51.9% of our expectations and slightly ahead at 60.6% of consensus forecast.

  • Earnings sustainability will be backed by orderbook at RM12.1bn with potential extension of RM10.9bn on the cards to keep the Group busy till 2035.

  • Kept our earnings forecast unchanged and maintained BUY recommendation with unchanged target price of RM0.76 by pegging 0.6x P/B ratio (2Y historical mean) to its BVPS of RM1.26 in FY25F.

     

Results Review

  • Results review. 2QFY24 core net profit jumped 121.9% yoy and 10.4% qoq to RM266.6m, as operations return to normalcy with floating production storage and offloading (FPSO) and floating storage units (FSU) average uptime stood at 100.0%. Revenue for the quarter climbed 31.2% yoy to RM578.9m.

  • Within expectations. Reported core net profit in 1HFY24 at RM508.1m came in at 51.9% of our expectations of RM979.5m and 60.6% of consensus expectations of RM838.6m.

  • Operations Highlights. Operational uptime for wholly-owned vessels was at capacity at 100.0% as the Kraken rebounded strongly to pre-transformer issue operations back in 2023. We expect operations to remain stable in subsequent quarters ahead. Pre-tax margins are expected to hover c.50% level, while gearing level is expected to pare down towards near 60.0% by end-FY24. Already, net gearing has pared down from 79.7% as at end-2023 to 65.0% as at 1HFY24. 

  • Industry Highlights. While Brent oil prices fell from recent peak of c.US$91/bbl in mid-April 2024, prices appear to have found stability above US$75/bbl in recent months. Despite the volatility, we reckon demand for FPSO may remain may solid premised to the tight supply due to the high barrier of entry which potentially result in more favourable contract terms. 

  • Outlook. Going forward, ARMADA’s orderbook at RM12.1bn with potential extension of RM10.9bn will sustain revenue visibility till 2035. Armada Sterling V Final Acceptance was achieved on 1 July 2024 is expected to contribute positively, while first year option of extension for Armada Kraken has firmed up, bodes well.

  • Valuation. Kept our earnings forecast unchanged, given that reported earnings came within expectations. Maintained our BUY recommendation with an unchanged target price of RM0.76 by pegged 0.6x P/B ratio (2Y historical mean) to its BVPS of RM1.26 in FY25F.

  • Risk. Unable to secure contract extensions, contracts cancelled by clients, weaker-than-expected average uptime.           

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