[BUMI ARMADA LATEST ANALYSIS] https://malaysiainvestment88.blogspot.com/2020/01/bumi-armada-latest-analysis-drop-hugely.html

https://youtu.be/HyqtrT5fcVo

“It’s built into the system that stocks get mispriced,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting.

There are several reasons why mispricing can occur from market inefficiencies to behavioural factors. I don’t really try to analyse the reasons for the mispricing, but rather look for opportunities for this.

I think Armada is a potential mispricing.

Armada ROE had been trailing those of my 2 reference Bursa energy services companies – Dayang and Deleum for many years since 2012.  But over the past 2 years, Armada ROE had overtaken those of Dayang and Deleum

At the same time when you look at the trends of the ROE and market price for Armada, you can see that while the ROE has shown improvements over the past 4 years, there has hardly been any improvement in the market price.

I would consider this a mispricing opportunity that warrants a deeper look.

In the mid 2010s, Bumi Armada performance deteriorated due to the low crude oil prices. It had to re-organized itself and the company's performance over the past few years had improved.

There were improving gross profitability and contribution margins over the past few years. Its facilities are operating at high utilization levels. It had also improved its financial position. But this is a Group whose performance is tied to the expenditure of the oil and gas companies. This in turn is tied to crude oil prices.

Crude oil prices are cyclical and I do not expect the current high prices to continue forever. So when crude prices decline, I would expect Bumi Armada performance to follow suit. If you are a long-term investor, you should be looking at this performance over the cycle rather than just the current performance.

Is the Market Sleeping on Bumi Armada’s Turnaround?

Over the past six years, Bumi Armada has transitioned from a dual-segment model - comprising FPSO operations and Offshore Marine Services - into a focused, integrated offshore production business.

The offshore support vessel segment was gradually scaled down, and by 2022, all operational assets were consolidated under a single Operations unit. A new Technology, Engineering & Projects unit was also established to provide engineering consultancy and project support services.

Geographically, Bumi Armada streamlined its footprint while maintaining a presence in key offshore regions across Asia, Africa, and Europe. By 2023, its operations spanned five continents, but with fewer, more strategically aligned assets focused on high-value, long-term production contracts.

These strategic shifts have yielded strong results. Net profit surged from RM 38 million in 2019 to RM 656 million in 2024, while ROE improved from 1.2% to 11.3%. This improvement is reflected in its Goldmine quadrant in the Fundamental Mapper.

Can this performance be sustained amid declining crude oil prices triggered by the current tariff war?

According to the company, its core revenue is not directly tied to crude oil prices. This is due to its long-term, fixed-rate FPSO contracts, which provide stable cash flows regardless of short-term oil price movements.

While broader market conditions - such as lower crude prices - may affect future contract opportunities or investment cycles, Bumi Armada’s current revenue base remains largely insulated from these fluctuations.

Has the market missed this picture, given the declining stock price since the start of the year?

If you want to understand more about the impact of declining crude oil prices on other Bursa E&P companies, join me this at this Thursday podcast

Date: 24 April 2025 (Thu)

Time: 8:30pm

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