ARMADA, through a 50:50 JV with UK-listed Navigator Holdings, has signed an MOU with international energy company Uniper (UK) Limited (Uniper) to explore liquid CO2 storage and carriers. We believe the capex requirements will be lower than those of LNG projects. We maintain our forecasts, TP of RM0.58 and MARKET PERFORM call.

ARMADA and Navigator Holdings Ltd announced that Bluestreak CO2, their 50:50 JV established through a previously announced non-binding MOU, has entered into an MOU with Uniper. This collaboration will explore opportunities arising from the UK government’s goal of decarbonizing the power sector by 2030.

Under the MOU, the parties will explore the feasibility of implementing a jetty-moored floating liquid CO2 storage facility and liquid CO2 carrier solution for the export of CO2 from Uniper’s proposed Grain carbon capture project on the Isle of Grain, United Kingdom. While this is a positive development for ARMADA, it is still early to assess the economics of the CO2 projects.

Based on our channel checks, a CO2 carrier vessel could require a capex of USD100m-USD200m, while a floating storage unit could require USD100m-RM300m. However, ARMADA’s final capex requirement will depend on the ownership structure of the potential assets. We believe the required capex will be lower than for LNG projects of similar function (storage and carrier). However, the LNG industry is more mature than the CO2 industry. As a result, we believe the project carries less risk when executed in conjunction with its two partners.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP at RM0.58 after a 5% discount to reflect a 2-star ESG rating as appraised by us (see Page 5).

Investment case. We like ARMADA given: (i) the potential re-rating arising from its improving gearing, (ii) its long-term earnings visibility from sizeable order book in excess of RM20b (including potential extensions), and (iii) its long-term growth driven by multiple potential FPSO and LNG projects. However, post Kraken recovery, the group’s earnings will be flattish in the absence of any new project. Maintain MARKET PERFORM.

Risks to our call include: (i) further delay in Sterling 5 JV first oil (beyond FY24), (ii) cost overruns and delays for EPCC projects, and (iii) inability to secure contract extensions for key FPSO assets. .

Source: Kenanga Research - 25 Jul 2024