Bumi Armada Bhd has received reaffirmed BUY calls from RHB Investment Bank Bhd (RHB Research) and MIDF Amanah Investment Bank Bhd (MIDF Research), citing robust earnings growth and promising prospects.
RHB Research maintained its target price (TP) at 73 sen, indicating a 33% upside, while MIDF Research raised its TP from 85 sen to 88 sen, implying a 60% potential gain. Both reports highlighted the company's steady financial performance and strategic developments, including potential synergies from a merger with MISC Bhd's offshore business unit.
The group reported a 44% year-on-year (YoY) increase in normalised earnings for the first nine months of FY24, amounting to RM718 million. Revenue climbed 17% YoY to RM1.8 billion, driven by improved contributions from the Armada Kraken and Armada Olombendo floating production storage and offloading (FPSO) vessels. This performance was offset slightly by a decline in other income due to the absence of vessel disposal gains seen last year.
For the third quarter of FY24 (3Q24), Bumi Armada achieved an average uptime of 99% across its FPSO and floating storage units. However, the Armada Sterling V FPSO posted a loss, attributed to an aggressive depreciation schedule. The unit is expected to be profitable by the second half of 2025. The Armada TGT-1 FPSO also secured a two-year charter extension worth US$74.4 million (approximately RM333 million), albeit at a marginally reduced daily rate.
Bumi Armada's financial position continues to strengthen, with the group repaying US$45 million in debt during the 3Q. This brings its net gearing ratio to 0.45 times. Meanwhile, its order book stands at RM10.2 billion, with an additional RM9.5 billion in potential contract extensions. The group's debt maturity profile has been realigned with project cash flows, with 30% of its borrowings now hedged.
Looking ahead, analysts are optimistic about the group's prospects. The potential merger with MISC's offshore business could position Bumi Armada as a global FPSO powerhouse, expanding its operational footprint and enhancing financing access. However, analysts caution that the deal's final structure and pricing will be critical to its success.
RHB Research noted that Bumi Armada's valuation remains attractive, trading at a forward price-to-earnings ratio of 4.7 times for FY25, based on assumptions of a lower charter rate for Armada Kraken. MIDF Research echoed this sentiment, highlighting the group's strategic wins, including its RM281 million engineering and construction contract with EnQuest Heather Ltd and progress on the Akia production sharing contract appraisal.
Despite these strengths, downside risks such as contract cancellations, operational challenges with Kraken and the potential impacts of elevated depreciation policies remain in focus. Both firms maintained that Bumi Armada's fundamentals and strategic initiatives support its favourable investment outlook.
