News

Yesterday, ARMADA filed and served a Statement of Claim in the Supreme Court of Western Australia against Woodside Energy Julimar Pty Ltd (Woodside) in relation to the contract for the charter of the Armada Claire Floating Production Storage and Offloading unit.

Under the Statement of Claim, ARMADA made a claim for damages, including the sum of USD275.8m being the amount of the termination payment entitled upon termination plus any additional damages for loss of bargain. An additional sum of USD7.7m was sought for work done and materials supplied pursuant to the Contract.

Comments

We believe the court proceedings could take up to at least 6 months to settle and possibly longer if things become more complicated.

An out-of-court settlement could be a better alternative for ARMADA to recoup partial amount of the claim in a shorter time frame.

However, if ARMADA were able to claim the full amount of USD283.5m, it would represent an additional 19.0 sen to our current target price of RM0.80 assuming the exchange rate of RM3.90/USD as we have taken out Armada Claire’s valuation from our valuation.

Meanwhile, we gather that ARMADA has settled the outstanding loan on the FPSO unit through internal funds. The vessel is currently sailing to Batam to be anchored as pending redeployment options.

In our view, impairment risk is high given that the chance of deployment is relatively low in the current challenging market.

Outlook

Four of its FPSO projects (Kraken, Olombendo, Madura and Malta) in the pipeline are on track with conversion in the shipyard, looking to sail away by July this year.

Both its 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 two more in the near-term.

Forecast

No changes to our forecast

Rating

Upgrade to MARKET PERFORM from UNDERPERFORM as share prices have fallen 20% since the termination and we believe it has factored all the negative newsflow.

Valuation

Our SoP-driven TP is maintained at RM0.80. Successful claim on Armada Claire could be regarded as a re-rating catalyst.

Risks to Our Call

Upside Risk: (i) Better-than-expected OSV and T&I segments, (ii) Better-than-expected FPSO execution, and (iii) Faster-than-expected recovery in oil prices.

Source: Kenanga Research - 22 Apr 2016