News

• Armada has allowed continuing flow of produced oil into FPSO Perdana and a one-off cargo intake by Erin (contract counterparty.

• The one-off cargo would generate proceeds of which the amount would be offset against outstanding amount owned by Erin to Armada.

Financial Impact

• While it’s a slight positive to the company, the proceeds from one-off cargo would be immaterial while continuing flow of oil would not generate any revenue for the company as the client has stopped its charter payment.

• Discussion is still ongoing for the settlement of the outstanding amount due from Erin.

• O&M and bareboat charter remains suspended for FPSO Perdana.

• Perdana’s earnings and valuation have been excluded in our forecast.

Pros/Cons

• Allowing oil to continue flowing for the FPSO has enabled better discussion with client for the settlement of its debts, which could be more beneficial in the long run.

• However, discussion could be further dragged before a significant sum of outstanding owned could be recovered by the group.

Risks

• Execution risk;

• Prolonged low oil price; and

Forecasts

• Maintain forecast.

Rating

HOLD ( ↔ )

• Earnings are expected to be stronger this year with new projects coming on stream. However, the continued delay in delivery of Armada Kraken would further exert cautious 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 - 6 Oct 2017