ARMADA has secured approval from American Bureau of Shipping (ABS), a world leading classification service provider to marine and offshore assets, for a proposed floating LNG (FLNG) concept involving scalable and flexible offshore liquefaction unit (bargebased). This allows ARMADA to bid for FLNG jobs globally. We maintain our forecasts, TP of RM0.62 and OUTPERFORM call.

Approval for FLNG solution. The company has secured approval from ABS, a world leading classification service provider to marine and offshore assets, for an innovative FLNG infrastructure solution that can bring LNG to the market in a fast-track, cost-effective, flexible, and reliable manner. This concept incorporates a newly built barge-based liquefaction unit and the utilization of existing LNG carriers for storage.

Opening doors to FLNG projects. We are positive on the latest development that will open doors for ARMADA to FLNG projects. The group has developed the barge-based liquefaction unit for a standardised LNG design capacity based on a modularised and repeatable compact design. In other words, if executed without flaw, the solution would be cheaper for the client as floating liquefaction solution would be more flexible compared to current onshore solution.

Kraken hiccup largely resolved. On a separate note, the forced shutdown of FPSO Kraken will likely to hit 3QFY23 earnings but the asset has been running at full steam since August 2023 as its transformer has been successfully reconditioned and redundancy has been secured in Sep 2023 with a 4th new transformer installed on the FPSO. The group has also secured syndicated term loan facility for an amount of c. USD105.5m with final maturity on 25th September 2023, to refinance its existing facility (maturing in May 2024) and this further reduces concerns on its current gearing level.

Forecasts. Maintained. To recap, our forecasts assume a partial loss of bareboat charter income from Kraken in Jun-Aug 2023. This resulted in a benign 9% impact from the shutdown.

We also maintain our Sum-of-Parts TP of RM0.62 and OUTPERFORM call. Our valuation reflects a 5% discount to factor in a 2-star ESG rating as appraised by us (see Page 5).

We like ARMADA due to: (i) sustained traction in its efforts to deleverage its balance sheet (current net gearing: 0.8x), (ii) long-term earnings visibility from substantial order book in excess of RM20b (including extension options), and (iii) it being the leading contender for a USD1b EPCC contract for FPSO Cameia.

Risks to our call include: (i) offshore production projects held back by weak crude oil prices, (ii) cost overruns and delays for EPCC projects, and (iii) clients do not exercise optional extensions for the FPSO fleet.

Source: Kenanga Research - 12 Oct 2023