Bumi Armada Q4 profit seen to be lacklustre

PETALING JAYA: Bumi Armada Bhd’s fourth quarter earnings is expected to be lacklustre, due to weakness in the offshore marine services (OMS) segment as well as the renewal of its vessels Armada Constructor and Installer, said UOB Kay Hian.

This is despite a likely recovery in the floating production storage and offloading (FPSO) segment in the fourth quarter ending Dec 31, 2018 (FY18), driven by full finance lease income from its Kraken FPSO unit.

Interest cost should be lower with reduced borrowings.

“However, joint-venture income may fall to the RM30mil base. We expect weakness in OMS, given that the fourth quarter is a monsoon season, and the completion of works from Armada Constructor.

“At this juncture, we see the renewal of Armada Constructor and Installer as the biggest earnings risk as we believe its earnings contribution is substantial,” the research house said in a report.

Both vessels are bidding for 2019 jobs in Russia, Kazakhstan and Turkmenistan, with outcome to be known by the end of this year.

Assuming this, activity may be high in the second to third quarter of 2019, though there is no guarantee that the vessels will earn revenues for all of 2019.

Bumi Armada posted a surprise third-quarter FY18 impairment of RM563mil last Friday from 70% of its 44 offshore support vessels (OSVs), coupled with the loss from the sale of Armada Ulysses, which was earlier intended for an FSPO project.

This was in addition to Armada Kraken’s second-quarter FY18 penalties arising from different technical specifications determined in the contract amendment to mitigate Bumi Armada’s exposure to its client EnQuest’s claims, which brought total impairments for the first nine months of FY18 to RM1bil.

As such, AmInvestment Bank has slashed Bumi Armada’s FY19 net profit to just breakeven on lower margins from the FPSO and OSVs segments. This is amid expectations of a seasonally weaker fourth-quarter FY18 while the group’s core net profit of RM2mil year-to-date (excluding one-off impairments) was grossly below expectations.

“We have also cut FY19 to FY20 earnings by 47% and 65% as the expected rebound from FPSO Kraken’s contribution from operating to finance lease after final acceptance on Sept 4 is likely to disappoint, partly offset by reduced contribution from Vietnam-based Armada TGT 1’s lower charter rates,” said AmInvestment Bank.

On its term loan, Bumi Armada did not utilise its US$1.5bil euro medium-term notes programme for its remaining US$380mil term loan, as the maturity deferment is still being negotiated and extended until early first quarter of 2019.

Bumi Armada has paid US$120mil of the US$500mil debt due in October 2018 for the Kraken FPSO vessel.