Results /Briefing

• Within expectations: 3Q17 core net profit came at RM65.1m, bringing 9M17 core profit to RM240.0m, accounting for 82.3% of HLIB and 76.6% of street’s estimates. We expect 4Q17 to be weaker, dragged by lower expected vessel activity and Lukoil work orders.

Deviations

• None.

Dividends

• No dividend declared.

Highlights

• YoY: Core net profit of RM65.1m was registered against loss of RM22.2m in 3Q16 mainly due to: (i) recovery in FPSO earnings from contribution of Olembendo; and (ii) recovery in OMS division due to lower costs post vessel cold stacking.

• QoQ: Profit plunged 42.7% due to: (i) significantly weaker OMS earnings on the absence of one-off revenue recognition for Lukoil contract in 2Q17; (ii) lower FPSO EBIT due to higher costs incurred for Olembendo; and (iii) higher interest cost.

• 9M17: Core PATAMI of RM240.0m was reported against RM70.4m loss in 9M16 due to: (i) turnaround in FPSO division upon commencement of Olembendo and partial contribution from Kraken; and (ii) stronger OMS division contribution due to supplementary contract revenue for Lukoil.

• FPSO Kraken is currently in the interim production phase while waiting for final acceptance from its client, Enquest (tentatively by 4Q17), before it is able to receive full amount of charter.

• In the meantime, Armada would 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 would take longer than expected.

• Therefore, we only expect significant contribution from Kraken in 2018 instead 2017. 4Q17 is expected to be a weaker quarter for OMS division due to monsoon and lower expected activities for the Lukoil project.

Forecasts

• Maintain forecast.

Rating

HOLD ↔

• Earnings 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 - 24 Nov 2017