9M17 core net profit of RM256m is in line with our estimate, up 177% yoy, boosted mainly by contributions from FPSO Olombendo and Kraken as well as one-off revenue recognition from the LukOil project. The only miss is with management’s guidance that the FPSO Kraken might see a potential delay to 1Q18 (from an initial end-17 target) for its final acceptance. Nevertheless, the current interim agreement should provide some support for the time being. Reaffirm our BUY call with an unchanged SOTP-based TP of RM0.95.

9M17 Results Within Expectations

3Q17 net profit came in at RM123.7m (+6.1% qoq, +228% yoy). After excluding the one-offs which consist RM74m disposal gain on FPSO Intrepid, RM8m doubtful debt allowance, and RM6m forex loss, core net profit was RM67m (2Q17: +RM124m; 3Q16: -RM6m). Although core earnings accounted for 80% and 82% of our and consensus FY17 forecasts, we deem this to be in line with expectations as 4Q will likely see a weaker contribution from the OMS segment due to seasonality. Cumulative 9M17 revenue rose 44% to RM1.7bn driven by maiden contribution from FPSO Olombendo, Kraken, Malta FSU, and one-off revenue recognition from the LukOil project. EBITDA margin rose 11.9ppts yoy to 54% in tandem with the higher revenue.

QoQ Decline on High Base

FPO revenue increased 19% qoq due to maiden contributions from FPSO Kraken and FPSO Perdana. However, this was offset by the 33% decline seen in the OMS segment as a result of the high base in 2Q following the one-off revenue recognised on the LukOil project. Operating profit fell 23% for the FPO segment due to commencement of depreciation from Kraken as well as higher incurred costs for Olombendo to ramp up production (not expected to be recurrent). OMS segment profit fell 96% qoq in tandem with the normalisation in revenue. Net gearing fell from 1.89x to 1.84x.

Maintain BUY

We affirm our BUY call with no changes made to our SOTP-based 12- month TP of RM0.95. We expect the strong earnings momentum to spur investor interest. In addition, potential compensation for FPSO Claire (amounting to US$280m) would be an added bonus.

Source: Affin Hwang Research - 24 Nov 2017