Results /Briefing

• Within expectations: 4Q17 core net profit came at RM41.9m, bringing FY17 core profit to RM282.0m, accounting for 96.7% of HLIB and 90.0% of street’s estimates.

Deviations

• None.

Dividends

• No dividend declared.

Highlights

• YoY: Core net profit of RM41.9m was registered against loss of RM222.2m in 4Q16 mainly due to: (i) recovery in FPSO earnings from contribution of Olombendo and Kraken; and (ii) recovery in OMS division due to lower costs post vessel cold stacking.

• QoQ: Profit plunged 35.6% due to lower share of results of joint ventures.

• FY17: Core PATAMI of RM282.0m was reported against RM151.8m loss in FY16 due to: (i) turnaround in FPSO division upon commencement of Olombendo 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 (producing c.50,000 bbls oil) while waiting for final acceptance from its client, Enquest (tentatively by 2Q18), before it is able to receive full amount of charter.

• Management expects activity in the Offshore Service Vessel (OSV) business to remain muted due to oversupply and subdued new demand in 2018.

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

• Maintain HOLD call with higher SOP-driven TP of RM0.79 (from RM0.72) after lowering our WACC assumptions on valuation of FPSO Kraken and FPSO Olombendo due to reduced cash flow risk.

Source: Hong Leong Investment Bank Research - 27 Feb 2018