KUALA LUMPUR (Aug 28): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” rating on Bumi Armada Bhd at 50 sen with an unchanged target price (TP) of 71 sen after Bumi Armada posted second quarter of financial year 2023 (2QFY2023) core net profit of RM47 million — down 76% quarter-on-quarter (q-o-q) and lower by 78% year-on-year (y-o-y) — bringing first half of 2023 (1H2023) core earnings to RM243.3 million, down 39% y-o-y.

In a note on Monday (Aug 28), the research house said it deemed the results to be within house expectations at 46% of full–year estimates but trailed consensus at 35%.

HLIB said it continues to see a vast improvement in Bumi Armada’s balance sheet with the following highlights: a consistent decline in net debt, reaching RM4.1 billion by the end of the 2Q2023, and a continuous reduction in net gearing for the past 13 quarters to 0.7 times as at end-2Q2023 from a peak of 2.9 times in 1Q2020.

“We anticipate that Bumi Armada’s debt management profile will continue to improve gradually in the upcoming quarters and is currently in a comfortable financial position to actively pursue new job opportunities.

“We note that management has subtly hinted at the fact that 2Q2023 is the worst reporting quarter due to the Kraken shutdown — with improved sequential showing in the upcoming quarters ahead, in line with our view.

“In view of this Kraken FPSO (floating production storage and offloading) issue likely being entirely resolved by FY2023 and assuming full status quo in FY2024, we maintain our 'buy' recommendation on Bumi Armada with an unchanged TP of 71 sen — pegged to a P/E (price-earnings) multiple of six times on mid-FY2024 earnings, which is at a 35% discount to its peer Yinson’s one-year forward multiple of nine times.

“Bumi Armada is our top pick in the sector,” it said.