• Keep BUY and MYR0.70 TP, 33% upside. Bumi Armada’s 1H24 results beat estimates on stronger margins and lower tax expenses. Its valuation remains fairly attractive, at 4.3x FY25F P/E – assuming the charter for Armada Kraken is extended at a lower rate. The continuous strengthening of its balance sheet and solid operating cash flow allows the group to bid for new projects and expand into other new ventures.

• Above expectations. At 60% of our and Street full-year estimates, 1H24 core earnings of MYR506m (+97% YoY) came in above expectations, due to lower- than-expected tax expenses and better margins. No dividends were declared for the quarter, as expected.

• BAB recorded a core profit of MYR256m (+3% QoQ, +3.7x YoY) after stripping off a MYR7m fair value gain on financial assets and MYR3m unrealised FX gain. The slight QoQ improvement was largely led by strong JV & associates contribution and additional engineering services charged to JV entities masking the absence of the bump-up from Armada Olombendo due to the finalisation of the daily operating fee escalation. Cumulatively, 1H24 core earnings almost doubled thanks to higher contribution from Armada Kraken, following the resolution of an outstanding issue with the charterer as well as higher Armada Olombendo contribution, as mentioned earlier.

• Outlook. Armada Kraken has been extended by one year to Apr 2026 at lower rates. It was highlighted that there is a possibility of potential impairment by year end if the value-in-use (VIU) remains lower than the net book value. Recall that BAB impaired the vessel by MYR514m in 4Q23. Meanwhile, BAB repaid USD59m in borrowings in 2Q24, lowering its net gearing to 0.44x (0.56x in 1Q24). The MYR1.5bn Sukuk Murabahah has been refinanced with a new six-year financing facility of USD400m in August at a higher interest rate. Meanwhile, the Armada Sterling V FPSO has achieved final acceptance in July and management is confident to secure charter extension for Armada TGT beyond Nov 2024. Also, in July, BAB’s JV Bluestreak CO2 signed a MoU with Uniper, an international energy company, to explore the feasibility of implementing a jetty-moored floating liquid CO2 storage facility and liquid CO2 carrier solution, for the export of CO2 from Uniper’s proposed Grain Carbon Capture project in the UK. Construction will only begin at the soonest by the end of 2026.

• Keep BUY. We lift FY24F-26F earnings by 11%, 13% and 13% to factor in stronger margins and lower tax expenses. As such, our DCF-based TP is lifted to MYR0.70 with a 6% ESG discount imputed, based on our ESG score of 2.7. Downside risks: Contract cancellations, failure to win new contracts, and a deterioration in the Kraken operations.

Source: RHB Research - 23 Aug 2024