Bumi Armada Berhad: 3Q results within expectations (OCBC)

3Q results within expectations. Bumi Armada Berhad (BAB)'s 3Q revenue increased by 23% YoY to M$404m while PATMI fell 7.5% YoY to M$93m. Over a nine-month period, revenue and net profit were M$1.2bn and M$235m respectively. Both formed 74% of our full year estimates. The performance across each business segments was varied. BAB's key business segments (i.e. FPSO and OSV) performed very well with substantial growth in both revenue and net profit. In contrast, the Transport & Installation (T&I) business reported a small operating loss of M$8m, largely due to the dry-docking of a vessel. The group also recorded about M$16m of earnings from jointventures, mainly from its ONGC FPSO contract.

FPSO business powering ahead. On a sequential quarter basis, BAB's FPSO revenue increased by 37.5% to M$178m (2Q11: M$129m) while net profit almost doubled to M$65m (2Q11: M$34m), attributable to the recently secured M$1.46b Apache contract. In addition, it is also working on the US$620m ONGC contract. As the contract is secured through BAB's 49.9%- owned joint venture with Bombay-listed Forbes & Company, earnings on the project would be reported on its P&L using equity accounting. With strong market demand, management is looking to secure two good FPSO projects annually over the next few years.

Other segments' results mixed. Its OSV segment performed very well during the recent quarter. Buoyed by high utilization rates (around 90%) and new vessel additions, revenue increased by 14% QoQ to M$134m (2Q11: M$117m), while operating income doubled to M$40m (2Q11: M$20m). However, the T&I segment registered a M$8m operating loss (2Q11: M$25m operating profit), partly due to the dry-docking of Armada Installer to retrofit its pedestal crane. As for the newly set up Oilfield Services (OFS) segment, revenue and profit recognition remained lumpy due to lower volume of work (compared with other segments). For 3Q11, OFS revenue and net profit were M$45m and M$26m, respectively.

Maintain HOLD with M$4.00 fair value. We continue to like BAB's resilient earnings profile; its revenue are backed by an order-book of M$10.3bn (M$7.2bn of firm contracts and M$3.1b of optional extensions). Meanwhile, the stock is set to join the MSCI Malaysia Index at end-Nov 11. We increased our valuation peg to 21x (from 18x previously) and raised our fair value estimate to M$4.00. Maintain HOLD.