• Value emerges after recent selldown. After hitting a high of RM0.84 (16 Aug), A RMADA’s share prices slid 15.5% to close at RM0.71 yesterday. The selldown was mainly driven by weakened sentiment on O&G stocks amid consolidation in Brent oil prices after hitting a 3M high near US$52/barrel (19 Aug). The above was augmented by investors’ concern over the outcome from the court dispute over FPSO Claire claims, as the market may have overpriced the risks of the termination of Armada Clai re by extending this risk to ARMADA’s other projects.

• At RM0.71, ARMADA is trading at 0.66x P/B, which is 32% below 10-year average 0.98x. We believe such steep valuations have priced in most of the negatives and provided sufficient margin of safety to cushion further sharp share price decline.

• Look beyond 2016. Although the company is still going through nearterm pain, we beli eve ARMADA’s ongoing projects have low termination risks. While core FY16 PATAMI is expected to drop 34% yoy, rerating catalysts are in the pipeline: (i) Deliveries and successful execution of its 4 new FPSO and FGS contributions (to be delivered from 2017 onwards with very long-term contract tenures ~8-18 years which are positive for cash flow visibility); (ii) Normalised tax rate and better income contributions from associates and JV assets; and (iii) Recovery of utilization in the OSV and T&I. Hence, core net profit is expected to shoot up by 54% CAGR from 2016- 2018.

• Grossly oversold and ripe for a rebound. The stock is ripe for imminent technical rebound after the recent share prices rout, as the formation of a spinning top indicates potential upside reversal from a grossly oversold position. A decisive breakout above RM0.745 (50% FR) will spur prices higher towards RM0.77 (38.2% FR) and our LT objective at RM0.84 (6M high). On the flip side, key supports are RM0.695 and RM0.665. Cut loss at RM0.655

Source: Hong Leong Investment Bank Research - 21 Sep 2016