Broker: UOB Kay Hian
Date of Report: Friday, 29 August 2025

Bumi Armada Berhad Faces Margin Pressures and Uncertain Outlook Amid FPSO Market Shifts

Overview: Bumi Armada’s Earnings Disappoint as FPSO Margins Shrink

Bumi Armada Berhad (BAB), a key player in the floating production storage and offloading (FPSO) sector, has posted first-half 2025 results that fell short of expectations. Mounting operational costs, reduced FPSO margins, and a more subdued outlook for the rest of the year have weighed on performance. Despite these headwinds, the company’s strengthened balance sheet and active project pipeline offer some glimmers of hope.
The stock remains rated HOLD, with the target price lowered from RM0.50 to RM0.40. The reduction reflects more conservative margin assumptions and the expectation that the company will prioritize cash preservation over dividends in the near term.

Company Snapshot: Bumi Armada Berhad

• Business: Owner/operator of FPSO platforms, floating liquefied natural gas (FLNG) vessels, and offshore marine services.
• Share Price: RM0.37
• Market Cap: RM2,164 million (USD 500.5 million)
• Shares Issued: 5,927.9 million
• Major Shareholder: Objektif Bersatu (34.9%)
• Shariah Compliant: No
• 52-Week Range: RM0.695 / RM0.360
• GICS Sector: Energy

2Q25 Results: Key Figures and Analysis

Bumi Armada’s 1H25 core profit reached only about half of the usual quarterly average, missing both internal and consensus forecasts. The main contributors to this miss were reduced FPSO margins, higher repair and staff costs, and a lack of engineering works.

Additional Observations:
The full impact of the FPSO Kraken rate reduction was reflected in 2Q25.
Higher repair costs on FPSO Olombendo and increased staff costs pressured margins.
Engineering segment revenues were sharply lower, reflecting a lack of engineering work.

Exceptional Items and Segment Updates

2Q25 exceptional items included an RM18m forex loss, an RM16m one-off exploration expense (Akia PSC, Indonesia), and a RM28m distribution from a trustee of a bankrupt former charterer (Armada Perdana FPSO).
JV/Associate contributions improved QoQ, as deferred revenue from FPSO Armada Sterling was recognized.

Earnings Revision and Forecasts

Forecasts for 2025-2027 earnings have been cut by 10%-26%, reflecting:

• Lower FPSO Kraken rates.
• Higher running opex assumptions.
• Reduced EBITDA expectations.

Balance Sheet and Cash Flow Trends

Bumi Armada’s financial position has improved, with net gearing reduced to 0.3x. Debt repayments totalling RM0.4 billion in 1H25 cleared all outstanding unsecured corporate debt for the year. The company’s cash position is strong, supporting an active bidding pipeline for new projects.

Orderbook and Project Pipeline: Shifting Focus and New Opportunities

The firm orderbook was adjusted to RM9.1 billion (from RM10.1 billion QoQ), with RM5.7 billion for owned FPSOs and RM3.4 billion for JV FPSOs.
The company is actively bidding for projects, as reflected in higher staff costs.
Unlike peers who benefited from FPSO market booms, Bumi Armada’s recent contracts have not allowed for asset ownership, limiting upside.

Potential and Active Projects

• Upstream / O&G:
  • Akia PSC (Indonesia): Seismic studies complete, Final Investment Decision (FID) in 3-4 years. Exploration costs already incurred in 2Q25 (RM16m as BAB’s share).
  • Kojo PSC (Indonesia): FID expected in 4-5 years, lower exploration spend required.
  • Jalu Joint Study Agreement: FID in 2-3 years.
• FPSO:
  • Tuna FPSO (Harbour Energy, Indonesia)
  • Tangkulo FPSO (Mubadala, Indonesia)
  • Geng FPSO (Eni, Indonesia)
• Gas/FSU/FSRU:
  • Magnus Recovery Project for Enquest
• Carbon/FSCIU:
  • Floating Storage Carbon Injection Unit (FSCIU) with Bluestreak CO2 – 5MTPA, target 2030
  • Other FSCIU projects in Northern Europe and Southeast Asia
• Subsea:
  • Kalamkas-Khazar and Kashagan Phase 2A (Kazakhstan) – targeted for 2026-27

Strategic Focus: Upstream Entry and Diversification

Bumi Armada is shifting toward holding minority interests in O&G fields, maximizing its expertise across FPSO, energy transition, and upstream sectors.
The company had a technological head start in FLNG and carbon capture, delivering the world’s first FPSO with hydrogen sulphide processing (FPSO Karapan Armada Sterling II).
The Akia PSC marked its debut upstream investment, with a minimum exploration spend of US$7.7 million.

Environmental, Social, and Governance (ESG) Initiatives

Environmental: Carbon (CO2) reduction targets set using 2022 as baseline. Lost Time Injury Frequency (LTIF) reduced to nil in 2023.
Social: 42% of onshore staff are female. BAB supports charities in the UK, Angola, and India.
Governance: Four of seven board members are independent.

SOTP Valuation and Investment Thesis

Outlook and Recommendation

The HOLD rating is maintained, with a reduced target price of RM0.40.
The company’s share price is not expected to outperform in 2025 due to:

• Uncertainties regarding the FPSO Kraken rate step-down.
• Lack of detailed upstream cost guidance.
• Absence of new, high-quality contract wins.

Bumi Armada is likely to retain high cash levels to secure future projects, rather than repeat dividend payouts as in 2024 (first in eight years).

Conclusion: Solid Foundation, But Waiting for Catalysts

Bumi Armada Berhad remains fundamentally sound, with improved gearing, a healthy cash position, and exposure to a promising pipeline of projects across FPSO, upstream, and energy transition sectors. However, with margins under pressure, earnings uncertainty, and a lack of immediate contract catalysts, investors may want to adopt a wait-and-see approach as the company navigates a challenging phase. The next leg of outperformance will likely hinge on the successful conversion of its pipeline into profitable, long-term contracts and greater clarity on cost structures and project margins.