• 1Q14 PATMI slumps 40.9% YoY
• Things to get better
• Proposed equity fund raising

1Q14 results below expectations

Bumi Armada Berhad (BAB) started FY14 on a poor note, recording a 40.9% YoY dip in its 1Q14 PATMI to MYR64.8m on the back of a 4.1% decline in revenue to MYR468.9m. This fell short of expectations, with the former making up just 12% and 11% of ours and Bloomberg’s FY14 consensus forecast, respectively. The drag came largely from lower utilisation rates of its OSV fleet (1Q14: 70%; -11 ppt YoY), especially the older vessels, lower T&I activity due to winter conditions in the Caspian Sea (LukOil project) and completion of the Armada Hawk charter.

Expect significant improvement in coming quarters

Notwithstanding the slow start, management still expects its financial performance in FY14 to be better than FY13, which implies significant improvement ahead. This would be driven by continued contribution from its Kraken FPSO contract, maiden recognition of a major FPSO project from Eni Angola S.p.A., and rebound in its OSV segment due to its asset renewal plan towards more fuel efficient and higher specification vessels. As at 31 Mar 2014, BAB’s firm contract period order book stood at a healthy MYR13.3b (excludes the Eni Angola project worth MYR9.5b), with extension options totalling another potential MYR8.9b.

Proposed one for two bonus and rights issue

BAB also proposed a bonus and rights issue exercise (both entail one new share for every two existing shares held). The latter is calculated based on the pre-bonus issue number of shares held. Upon approval and completion, BAB will raise ~MYR2.2b, which will be used to fund its capex for future business expansion (mainly large FPSOs) and general working capital. This exercise is expected to be completed only in 3Q14 and we have not factored this in our model pending completion.

Maintain HOLD

We update our assumptions following a change in analyst coverage. Maintaining our target PER peg of 21x and applying this to our revised blended FY14/15F EPS forecast, we derive a new fair value estimate of MYR3.72 (previously MYR3.74). Maintain HOLD.

Source: OCBC Research - 26 May 2014