Results /Briefing

• Within expectations: 1Q17 core net profit of RM75.7m came within expectations at 26% of HLIB & 27% of consensus forecast.

Deviations

• None.

Dividends

• No dividend declared.

Highlights

• YoY: Core net profit surged 83.2% due to maiden full quarter contribution from FPSO Olembendo and FSU Mediterrana and better profitability from OMS business with lower depreciation cost posted post major impairment exercise in 4Q16.

• QoQ: The group returned into core profit from loss in preceding quarter underpinned by (i) higher JV contribution due to higher profits from Armada Sterling 1 & 2 and (ii) higher FPSO contribution upon commencement of new FPSO projects (Olembendo and Mediterrana).

• Comment: FPSO Kraken project has been delayed with deadline pushed back to 1 st July 2017. The group has provided US$20m for supplementary payment to clients for late delivery back in 4Q16. In 1Q17, the group has yet to provide for any further provision charges but it could be provided for in coming quarters if further delays are seen.

• Armada Perkasa (age >20 years ) has been disposed with no disposal loss . As for FPSO Perdana, client has been reimbursing Armada at cash cost while discussion is still ongoing for the payback of the receivables accrued since early 2016 due to client’s financial difficulties. Currently, no revenue for FPSO Perdana is assumed in our forecast to remain conservative.

• Its OMS division remains in the survival model with 21 OSV vessels being cold stacked to keep cash burn at the minimum while 1 vessel (Armada Aman) was sold in April 2017. We expect better profitability for the division in 2017 due to lower depreciation charges.

Forecasts

• Maintained

Rating

HOLD ↔

• Earnings are expected to be stronger this year with new projects expected to come on stream. However, continued delay in delivery of Armada Kraken would place overhang on the sentiment on the stock.

Valuation

• SoP-driven TP is maintained at RM0.72 with HOLD call maintained on the stock.

Source: Hong Leong Investment Bank Research - 1 Jun 2017