Resilient FPO continue to shine for Bumi Armada
KUCHING: Bumi Armada Bhd (Bumi Armada) stands to gain from its floating, production and offloading (FPO) operations as can be seen by its normalised earnings coming in at RM90.4 million for its first quarter of financial year 2020 (1QFY20).
Comparing against 1QFY19, the research team at MIDF Amanah Investment Bank Bhd ( MIDF Research) saw that revenue was higher by 12.4 per cent year on year (y-o-y) whilst earnings grew by 31.7 per cent y-o-y respectively.
Meanwhile, on a sequential quarter basis, revenue grew by 7.2 per cent quarter on quarter (q-o-q) whilst earnings surged by 112.8 per cent q-o-q respectively.
“This was primarily attributable to improved vessel availability of Armada Kraken FPSO, higher offshore support vessels ( OSV) utilisation rates as well as lower operating costs from Armada Olembendo in 1QFY20,” it said in a note.
“Revenue for Bumi Armada’s FPO segment – previously called floating production storage and offloading (FPSO) and floating gas solutions (FGS) -- grew by 8.6 per cent y-o-y.
“This was mainly attributable to higher contribution from Armada Kraken FPSO arising from improved vessel availability coupled with lower operating costs from Armada Olembendo and Armada Perdana – which was sold back in September 2019.”
Correspondingly, segment operating profit grew by 21.1 per cent y-o-y to RM263.5 million due to the better revenue recognition. Similarly, on a quarterly sequential basis; the segment’s revenue and profit increased by 10.2 per cent q-o-q and 35.5 per cent respectively mainly due to gains arising from translation of intercompany balances denominated in foreign currencies.
In a separate report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) saw that Bumi Armada’s offshore marine services (OMS) segment recorded a loss of RM362.1 million versus a profit of RM35.7 million in 4QFY19.
The deterioration is attributable to the RM314.4 million impairment carried out on its OSVs in response to the March oil price plunge, as the company primed the OMS segment for worse times ahead.
“Excluding impairments, the OSV segment would have recorded a gross loss of RM47.7m due to lower charter rates and higher depreciation for the OMS segment.
“We expect the OMS segment to face tough challenges going forward.
“The huge impairments this quarter is a leading indicator of weaker earnings expected from this segment due to the March oil price collapse as Petronas starts to cut capex.
“As most OSVs are currently under short term contracts, with a higher possibility of non-renewal when the contract expires, the OSV segment has seen its DCR decrease in 1QFY20 and this is expected to deteriorate going forward.”
MIDF Research saw that BUmi Armada’s orderbook amounted to RM18 billion as of March 2020.
Out of the RM18 billion, the firm saw that RM17.1 billion or 95 per cent is attributable to FPO segment.
“For certain firm contracts, upon expiration contains options to extend these contracts which are renewable on an annual basis with a total potential value of RM10.3 billion over the entire optional extension period,” it added.
“For the optional extension; RM15.8 billion or 88 per cent is attributable to the FPO segment while the balance of 12 per cent is expected to come from the OMS segment.”
Going forward, Bumi Armada disclosed that it continues to actively seek for new contracts for its two Subsea Construction vessels in the Caspian Sea under its OMS business.
“Negotiations for the contracts were reportedly ongoing however; it was curtailed by the recent outbreak of Covid-19,” MIDF Research said.
“Furthermore, the group will remain focused on improving operational performance, financial efficiencies and monetisation of assets which we opine will result in more sales of its idle OSV vessels.”