Results /Briefing

• Within expectations: 2Q17 core net profit came in at RM113.6m, bringing 1H17 core profit to RM174.9m, accounting for 60% of HLIB and 62% of streets’ estimates. We deem the result within expectations as we expect weaker 2H17.

Deviations

• None.

Dividends

• No dividend declared.

Highlights

• YoY: Core net profit more than doubled mainly due to (i) full quarter contribution from FPSO Olembendo; and (ii) stronger OMS division one-off revenue recognised based on previous work completed for the Lukoil contract.
• QoQ: Profit surged 85.1% driven by (i) full quarter contribution from FPSO Olembendo vs 1.5 months in 1Q17; and (ii) stronger OMS performance due to higher sequential activities resulting in higher vessel utilisation.
• 1H17: Core PATAMI improved by 88.9% caused by (i) commencement of new FPSO contracts; and (ii) one off revenue recognition on previous additional work completed for Lukoil in OMS division. Overall, OMS vessel utilisation rate improved but charter rates were lower YoY.
• FPSO Kraken is currently in the interim production phase while waiting for final acceptance from its client Enquest (tentatively by 4Q17), before Armada is able to recognise full charter payment.
• In the meantime, Armada can only recognise partial revenue of the contract while Enquest is ramping up its production gradually. Due to the complexity of the project, production ramp up will be longer than expected.
• Therefore, we only expect significant contribution from Kraken in 2018 instead 2017.
• Meanwhile, OMS division is expected to normalize in 2H17 post one-off revenue in 2Q17. Nevertheless, activity will ramp up again in 2018 hinging on the US$134m contract with Lukoil recently signed on 11th Aug 2017.

Forecasts

• Maintain forecast.

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 - 28 Aug 2017