Period

4Q15/FY15

Actual vs. Expectations

In 4Q15, ARMADA posted core net profit of RM110.9m, bringing its FY15 core profit to RM273.2m. This is within our/street’s expectations, accounting for only 95%/105% of the estimates.

Our core net profit excluded one-off items such as: allowance for doubtful debts, unrealised forex gain, write back on provisions.

Dividends

A NDPS of 0.8sen was proposed for FY15, which was below our expectations of 1.4sen.

Key Results Highlights

4Q15 core net profit jumped more than double YoY to RM110.9m from RM31.9m last year largely due to higher conversion activities from its four on-going projects (Olombendo, Kraken, Madura, Malta FSU) despite a 16% slump in revenue. This is offset by weaker OSV & T&I segments with lower asset utilisation. Meanwhile, we are guided that all the business segments are still in cashflow positive position requiring no subsidies from other business segments but OSV and T&I divisions are close to cash breakeven level.

Sequentially, 4Q15 core net profit also strengthened by more than 100% attributable to higher activity on the Installer and higher conversion activity on Malta FSU. However, OSV segment widened its losses with utilisation rate falling to 43% from 54% in 3Q15.

On the full-year basis, the cumulative core net profit weakened 20.6% YoY to RM273.2m from RM344.1m last year despite EBITDA growing 7% YoY to RM981.0m from RM914.0m in FY15. This was mainly dragged by its reduced activity from Lukoil project in the Caspian Sea and lower utilisation of the Armada Hawk and Armada Condor and decrease in OSV vessel utilisation.

Outlook

Four of its FPSO projects (Kraken, Olombendo, Indonesia and Malta) in the pipeline are progressing well with conversion in the shipyard, looking to sail away by July this year. We believe these projects will provide strong incremental cashflow for the group in the coming years.

Both OSV and T&I business segments’ earnings are expected to stay weak in the medium-term in view of the weak oil prices which will cap oilfield exploration and development activities. The company has already cold staked 18 vessels and is looking to cold stake 2 more in near term.

Change to Forecasts

We have cut our FY16E/FY17E earnings by 10.5/6.0% as we account for (i) lower OSV utilisation rate to 55/60% from 60/70% previously and (ii) lower T&I asset utilisation rate to 38/43% from 50/70%.

Rating

Maintain OUTPERFORM

Valuation

Despite the earnings cut, we made no changes to our target price of RM1.17 based on SoP valuation due to our relatively conservative valuation in the T&I and OSV segments, ascribing only 0.4 PBV to both divisions.

Risks

(i) FPSO project execution risk, and (ii) weaker-thanexpected margins

Source: Kenanga Research - 29 Feb 2016