News

• Armada has signed a supplementary agreement with Lukoil for an additional Engineering, Procurement, Construction and Installation (EPCI) scope.
• The job involves 20km of various pipelines in Filanovsky Field in Russian sector of the Caspian Sea using Armada Installer and Armada Constructor.
• The contract would commence soon and is expected to be completed in 2H18 with a total contract value of US$134m (circa RM576m). Financial Impact
• Not a significant surprise to us as Armada has been working with Lukoil for a long period of time.
• While positive, it would not affect our forecast as we have assumed revenue to be sustained at circa RM573m from Lukoil in our model for the Offshore Marine segment of the company

Pros/Cons

• The contract would help to sustain the group’s marine business cash flow buffer given as its long term relationship with Lukoil has been the major anchor for its T&I business.
• We believe it would be tough for the group to secure T&I contracts other than Lukoil contracts given the muted activity of the O&G upstream industry globally.

Risks

• Execution risk;
• Prolonged low oil price; and

Forecasts

• Maintain forecast.

Rating

HOLD (↔)

• Earnings expected to be stronger this year with new projects expected to come on stream. However, multiple issues with clients (Armada Perdana non-payment of charter by Erin and Woodside premature termination of Armada Claire) have placed overhang on the group’s share price.

Valuation

• SoP-driven TP is maintained at RM0.72 with HOLD call maintained on the stock. Our valuation has already excluded value for Armada Perdana.

Source: Hong Leong Investment Bank Research - 14 Aug 2017