[Armada (5210) - Can it reach to the next peak? 】

Armada has increased from RM 0.145 to RM 0.55. The team had expected to double more than a year, but Armada did it in just a few months period. This uptrend is very surprising.

Bumi Armada Berhad (Armada) is a Malaysia-based international offshore energy facility and service provider with operations in more than 10 countries. The company provides offshore services through two business units-Floating Production and Operations ("FPO") and Offshore Maritime Services ("OMS"), including Offshore Vessels ("OSV") and Submarine Construction ("SC") services.

-Bumi Armada is one of the world's largest floating production storage offloading ("FPSO"), is also the OSV brand and operator, and has extensive experience in Asia, Europe, Weizhou and Latin America.

-The company's turnover in 2018 was a five-year threshold, but its accounts were at a loss. The main reason is that the company's investment volume has been “impaired” in a row. Excluding the secondary "impairment", the company's profit before tax for 2018 is 216 million!

-The company is in the midstream business. The company mainly rents cruise ships FPO and OMS, but it is not directly affected by the price of crude oil futures, but indirectly affects the risk of reducing the upstream journey!

Armada AGM Shareholders' Meeting: (28/05/2019)

✅Work safety measures are the most important, and the overall performance of ARMADA safety measurement is very good.

Milestones in 2018:

-Final acceptance by Armada Olombendo
-TGT extends 6.25 year contract, valued at 285 mils
-Armada Kraken Final Acceptance
-Debt reduction of 280 mils
-Lukoil's contract is completed
-The new CFO, Mr. Luke Targett, takes office.
-OMS shows no signs of recovery, and tanker utilization and chartering rates remain low.
-Caspian's SC tanker breaks out of contract
-2018 Q4 sold two tankers

Management explained why Armada is where it is today:

1. Overinvesting in OSV

▪ OSV fell with oil prices in 2014
▪ Financial difficulties for OSV peers
▪ Slow recovery of OSV market
▪ Impairment of approximately RM1.7 bil

2.FPSO failed projects

▪ Armada Perdana-Reason: Reservoir problem, customer bankruptcy
▪ Armada Claire-Reason: Reservoir problem, changing customer
▪ Armada Kraken – Reason: No consistency with customers, complex engineering facilities and lack of experience
▪ Impairment of approximately RM2.7 bil

Q&A Time :

✅ Q: How to ensure that the company does not perform asset impairment?

A: We are currently doing our best to enhance the performance of Armada Kraken FPSO, and we expect to see results gradually in 2019. In this regard, we have established a professional team for close supervision. And, we will also sell useless assets for cash.

✅Q: Is it possible to do asset reversal in the future (Reversal of Impairment)?

A: The chances is very low.

✅Q: Please explain what effect debt refinancing has on the company's cash flow and finances, and how much interest will become?

A: Refinancing debt includes: 260 mil USD term loan is repaid in 24 months and 400 mil USD revolving credit is repaid in 60 months. This will enhance the Group's Net Current Liabilities. We expect to increase the interest of RM 40 mils per year.

✅Q: Will the company do a rights issue or a private placement in the future?

A: The company does not currently have this plan.

✅Q: Is there any department in the company that specializes in armada stock market trading? Because I found a large number of intraday short selling in the past few days.

A: The company does not have such a department. These are beyond the control of our directors. We can only focus on and enhance the company's performance.

✅ Q: What is your opinion and future outlook on the China-US trade war?

A: We try our best to strengthen our business and believe that the company has a better future in the next 5 years.

✅Q: Can you list the selling price of OSV tankers sold?

A: We usually sell tankers that companies no longer use when someone is willing to pay a good price. I don't have accurate numbers in my head at present to avoid misinformation. I can only say that 3 ships are selling at a higher price than net worth, and 1 ship is selling at a lower price than net worth.

✅Q: Will it expand in the next 3 years? How much will it spend on FPSO expansion?

A: It depends on the project we have. We currently only spend RM 79 mil on FPSO for expansion. We will not spend a lot of money on expansion.

✅Q: Excluding the profit from selling assets, how likely is this year to reach a positive net profit (without loss)?

A: We are not convenient to give any guarantee. We can only say that the company's turnover will gradually stabilize, but the utilization rate and chartering rate of oil tankers will still fluctuate. We achieved a net profit of RM 62 mil in Q1 2019.

✅ Q: Is there any debt that is due to be repaid that needs to be refinanced?

A: Most debt has been refinanced, and we try to convert all debt into non-current debt. We are confident of giving the company the right solution for cash flow. And the company's cash flow has gradually stabilized.

✅Q: What steps will you take to improve Kraken's performance? Can you give shareholders a guarantee?

A: This is a relatively complicated project, and we will try our best to improve performance. We cannot predict what will happen in the future, so at this point we are not in a position to guarantee it.

✅Q: What is the current utilization rate of OSV tankers?

A: About 38%, but we can see the signs of an increase in the OSV market.

✅ Q: How does the fluctuation of the US dollar affect the company? Is there any hedging?

A: US dollars strengthen is good for the company. We currently do not hedge on US dollar currencies.

✅Q: Will asset impairment be done in the future?

A: At present, we have not seen the need for asset impairment. But in the longer term, we cannot guarantee it.

✅ Q: The company's current asset-liability ratio is higher than other peers. What do you think?

A: We believe that our current strategy will reduce the company's asset-liability ratio.

Team insights after attending Armada AGM:

Overall, the management's response was very official, and they were reluctant to make too many verbal assurances on the issue with shareholders. Vaguely felt that management did not prepare too much data to address the problem from shareholders. Shareholders can vaguely feel that the management's confidence is not high, and often use the words "Unfortunately" and "We will try to ...". Nonetheless, the management has some good news, such as: the company will not do asset impairment, Right Issue or Private Placement in the near future.

It can be said that in the next few quarter, there is no need to worry about asset impairment lost or rights issue. The company has no plan for this moment.

When chatting with the company owner based on the company's ability to make profit, I learned that the company's sales this year will remain stable.

Louis Yap

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