Retailers are just not very smart. Go scroll up my messages and see what i told u guys months ago

Thank you uncle Koon. I bought AYS at 90 cents and promptly lost 20 cents today.

In my opinion, there are 2 key ways management will create value for shareholders through the Repsol acquisition:

1) Like twynstar mentioned above, management has forecasted total net cash inflows of USD255 million over the next 5 years, premised upon oil prices of USD53-57 USD per barrel. This equates to approximately USD51 million a year.

Note that Hibiscus raised USD50 million from issuance of CRPS in 2020, of which will be paid to fund the acquisition. The remaining consideration of approximately USD165 million will be funded via a combination of cash balances accruing in Repsol since 1 January 2021 until completion and debt issuance.

What does this all mean? This essentially means, at a conservative oil price assumption, Hibiscus is paying USD50 million to get USD51 million of net cash inflow every year for the next 5 years. If oil price averages USD70 per barrel, the net cash inflow figure will be jacked up much much further. In my opinion, this strategy has paid off handsomely and it is a matter of time before the numbers emerge.

2) Very simply, in the Pareto Securities presentation, in FY2021, Hibiscus achieved an ebitda of USD90 million USD based on oil prices of USD50 per barrel. Ebitda for Repsol is projected to be USD135 million based on oil prices of USD57 per barrel in 2022.

Now, assuming that the cost structure (depreciation and decom costs is the same for both assets), the profitability of Hibiscus is immediately enhanced by a factor of 1.5x post acquisition. Simply put, if my profitability and cash generation is enhanced by a factor of 1.5x, then naturally I would expect Hibiscus to appreciate by 1.5x over the next 6 months.

To top it all off, oil prices has far surpassed all assumptions and forecast and the profitability of Hibiscus will only follow as well.

https://www.thestar.com.my/business/business-news/2021/10/11/gas-malaysia-revises-average-selling-price-in-q4

Gas prices up 20% in q4 from q3

Then?

Believe in Tony. He is an entrepreneur.

Hiaptek TP 1 buck

Long live GREATECH!

I will continue to believe in CC Puan and the emergence of its e wallet!

Yes sir kahhoeng. So what you meant was that, Hibiscus should not have done a private placement of CRPS but rather a rights issue of CRPS so everyone can participate?

I think kahhoeng and cash999 are correct and brilliant. I was wrong. My apologies

Perhaps we can invite the two of them to explain that since they disagree with the move to use the CRPS to fund the purchase consideration for Repsol, maybe we can ask them how would they do it?

Rather secure the funding for the downpayment/proof of funds for 1/4 of the Repsol purchase consideration, or just do not raise funding via CRPS and have no Repsol assets which will triple production?

I trust the two of them will have good strategies and insight.

Dear fellow i3-ers,

Wake up and open your eyes.

Hibiscus current market cap = RM1.3billion
Hibiscus current EBITDA FY2021 = RM380 million

Now let us assume that Hibiscus is valued based on market cap/EBITDA, which means the market is pricing in a market cap to EBITDA ratio of 4x.

Now let us assume that Hibiscus has completed its Repsol acquisition, and assuming that the market prices its future market cap to EBITDA of 4x as above.

Hibiscus current EBITDA FY2021 + Repsol = RM380 million + RM570 million = RM950 million.

If the above holds true, Hibiscus should be valued at RM950 million x 4 = RM3.8 billion.

Why is Repsol adding so much in market cap, you must ask? Because the RCPS has already been fully converted and hence diluted into the market cap of Hibiscus, plus majority of the funding of the acquisition is via the cash flow from the Repsol assets since 1 January 2021, and some minimal debt, according to Hibiscus's presentation with FIRL. In essence, Hibiscus is paying money that is already in its pocket, does not need to raise more capital from shareholders to get an asset that is generating 1.5x its current cash flow.

I don't want to say that it is obvious, but guys, come on, it's damn obvious. Furthermore the above Ebitda of RM950 million is assuming oil price is between USD50-55 Brent. It is currently trading at USD73, which means much higher EBITDA.

I'm being conservative.

Buy stock, write blog, price rise, i sell, price don't rise, i don't lose.

KYY is my idol.

Hibiscus production today. 3.7 million barrels of oil. Share price 65 cents

Hibiscus production when Repsol completed. 10 million barrels of oil. Share price, 65 cents. Joke.

KYY is to be respected. He is an accomplished investor with a flawless track record, good analysis skillsets and a young and sound business mind

Please believe in Koon Yew Yin, he is Warren Buffett

Please believe in Koon Yew Yin, he is the best investor ever

Please believe in koon yew yin, he has exceptional investment skills

Some comparison on the SEVERE mispricing of Hibiscus Petroleum, by comparing it to a comparable that is very similar in its business operations.

Enquest Plc
21.75 GBX
+9.97 (84.63%)year to date

Hibiscus Petroleum Bhd
0.72 MYR
+0.14 (22.88%)year to date

Oil price ended at USD50 on 31 December 2020 and has since gained 50% to USD75 as of today.

So oil price has gained 50%, Enquest has gained 84.63% (obviously explaining that a dollar increase in oil price has a multiplier effect on share price) but Hibiscus is up 22.88%. Doesn't make sense, does it? This gap's closing in the coming weeks and months, for sure.

David Tepper Says Oil Stocks Are Cheapest Because People Hate Them

Billionaire David Tepper says he’s an oil stock bull right now.

Tepper, who was participating in the Robin Hood Investors Conference Wednesday, said with interest rates this low, equities are the place to be -- particularly FAANG stocks, according to people who heard his comments. The interview was pre-recorded for the event, which was held virtually this year.

Oil stocks are the cheapest equities by every measure because people hate them, said Tepper, who runs hedge fund Appaloosa. Tepper said he’s long many of them.

Tepper mentioned driller Occidental Petroleum Corp. as being incredibly cheap, with the potential to climb to $45 or $50 a share from its current price of about $29. He added the day Exxon Mobil Corp. added activist investors to its board was the time to buy oil stocks -- because it signaled drilling will eventually decrease over time, and with it supply.

Just want to point out that with Repsol assets, the production of Hibiscus will hit 10 million barrels a year.

A USD1 increase in average sale price of its 10 million barrels, equals incrementally USD10 million EBITDA and PAT of approximately 6.2 million USD, equal to approximately RM25 million increase in profit.

Since Jojobaa has spoken about the macro economics of the oil supply/demand relationship, Jojobaa will now speak about the transaction of Repsol, and how the structure of the acquisition and the mechanics involved is designed to minimize the risk, and maximize the upside of the deal.

Google Hibiscus's chart, and you will notice that its share price has gone up from 20 cents in 2016 to about 1 dollar 2018/2019. Why? Between this period, Hibiscus bought its North Sabah asset, and increased its production from 2500 to 9000 barrels a day. It also benefited from an increase in oil price, and the acquisition is the main reason why Hibiscus's market cap and share price surged post acquisition. If you do your M&A right like the management of Hibiscus, you can add a lot of value to its shareholders.

Now let us look at the details of the acquisition. How much you pay for an acquisition and HOW you pay for an acquisition, determines how much value you create or destroy for your shareholders. You pay more, over the long term you decrease your eps and there is no incremental value to be derived from the acquisition. You pay less, over the long term you increase your eps and your shareholders are better off post acquisition than pre acquisition.

Transaction value is approximately USD215 million for 34 million barrels of 2p oil, equating to about USD6.30 per barrel of oil. Remember my explanation above that at USD65, the net profit margin of a barrel of oil should be USD15.5 after accounting for petroleum income tax. This is in comparison to other comparables lower than most other companies such as Enquest but I would not focus too much on this. Even though this is amongst the cheapest if not the cheapest amongst its comparables, it is only a mere valuation benchmark as it does not take into account the production costs and other factors for consideration, amongst others. Comparables are known to trade at 8-16 USD per barrel of oil.

Second, we look at the how is the purchase consideration to be satisfied. Out of 860 million ringgit of consideration to be paid upon completion of the acquisition, the sources of fund are as follows:
a) 200 million already raised from CRPS and available in Hibiscus trust account;
b) 200 mil in additional CRPS to be raised over the next 6 months;
c) borrowings of 200 mil from financial institutions to be sought; and
d) the rest from the working capital/dividend to be declared from the Repsol assets as at completion date.

Jojobaa's commentary is that the risk onward from Hibiscus is very minimal as a) 200 million has already been raised prior, and c) 200 million from the production of Repsol asset attributable to Hibiscus since 1 January 2021 (out of ebitda of 550 million projected for 2022) is already earmarked to fund this purchase consideration. Sure, there might be uncertainty over whether Hibiscus can raise 200 mil from additional CRPS placement, but let me remind everyone that Hibiscus raised 200 mil when oil price is 40-50USD. Now smart money will be on that Hibiscus will be able to raise the additional 200 mil USD when oil price is trading at its current level. The borrowings source of funding is a good move to have an optimized capital structure, as Hibiscus will have an estimated combined EBITDA of 1B ringgit and by going for RM200 mil of borrowings, the risk attached to the borrowings is very very minimal. One quarter of EBITDA can in theory pay off the borrowings, though that is just in theory.

Hibiscus is paying USD165 mil to buy an asset worth USD215 million. Based on an EBITDA generation of RM550 million, if oil price sustains well above USD60, Hibiscus would have almost paid back itself on the investment in 2022 and enjoy 5 more years of RM550 mil of ebitda annually. Coupled with its current EBITDA of 350 to 400 million ringgit, I do expect Hibiscus to generate close to RM1 billion of EBITDA in calendar year 2021 inclusive of the Repsol acquisition.

Again, Hibiscus's fate from this acquisition ties its own fate a lot to the Brent crude oil prices. If crude oil prices is stable throughout these few years, then Hibiscus would be making super profit and super cash flows in it. If Brent crude oil plunges to a level of say USD40 per barrel then Hibiscus would surely not be creating value from this acquisition. Hibiscus has shown that management has traditionally use M&A and is one of the few companies on Bursa to have a superb track record with M&A. My money's on them to use this exercise to transform them into a much bigger animal.

Now Jojobaa will talk about the cash flow and profitability of Hibiscus Petroleum, which Jojobaa thinks that the investment community is severely underestimating.

Today Hibiscus Petroleum, pre-Repsol acquisition, has a production of 9,500 barrels a day, translating loosely to 3.4-3.7 million barrels of oil production a year. There is no seasonality involved, they produce consistently at this rate, as oil is a commodity.

To reconcile the revenue of Hibiscus is fairly simple, you take the amount of oil sold multiply by the oil price realized. Hibiscus does not traditionally have a hedging policy. For illustration purposes, since 1 April 2021, oil price has been hovering bound range between USD60 to USD70. Let us try to forecast the annual P&L of Hibiscus for FY2022, before the Repsol assets are consolidated.

Based on production of 3.7 million barrels based on an exchange rate of USD1 to RM4.1, the yearly revenue of Hibiscus is RM986 million. This essentially means that with yearly production remaining constant until depleted (HIbiscus has a reserves of 40 million 2P oil which will last them approximately 10 years given current production rate) oil price is the single most important to the revenue and results of Hibiscus Petroleum, and no such companies on Bursa has its results tied so much to the Brent oil price.

Following on let's talk about the cost structure, there are two types of costs that Hibiscus Petroleum has to pay. First is its opex costs, meaning the cost of depreciation of machineries, manpower, power etc. This ranges from USD13-20 bucks depending on the uptime of the production.

Second there are other costs not associated directly to the operation that includes provision for decomissioning liabilities and abandonment of oil field at the end of its life, head office costs and other costs.

All in all, per barrel of oil, the ALL IN costs of Hibiscus should be circa USD35-40 bucks per barrel. For discussion sake, let us use USD40 ALL IN cost to illustrate the numbers that Hibiscus can generate.

3.7 million x (65 - 40) = RM380 million profit before tax

PAT will be RM380 million x 0.62 (Oil income tax is 38%) = RM235 million.

How significant is the Repsol Acquisition? Assuming the economics and numbers of the Repsol assets are like for like to Hibiscus's existing assets, Hibiscus's profit is expected to triple to RM700 million as will triple its production profile. However, without getting the opex base, carrying value of its intangibles and PPE, the provision of decommissioning liabilities, it would be difficult to pinpoint the exact numbers of the Repsol assets. The announcement of the transaction did reveal the profitability of the Kinabalu PSC and the PM3CAA PSC which equates to about RM400 million in 2018 when oil price was trading at a similar level to now.

Jojobaa is of the view that the oil market will thrive in the coming near term and hence Hibiscus will be at the forefront top pick to benefit from this thesis. If you do not believe oil price will trade at anything above USD50 USD for the coming years, then it is best you avoid this stock.

Jojobaa Jojobaa is predicting a 50% upside for hibiscus in the next 6 months pending completion of the Repsol deal and 50% more after the completion of the Repsol deal.

First off, let's look at the macro environment for oil. Much has been said about the replacement of RE over oil. Oil's demand is approximately 45% gasoline, 18% petrochemicals, 18-20% in distillates/diesel, 6% aviation and the rest in other categories such as power generation, household etc.

While the emergence of EV will eat into the 45% gasoline demand, it is to be noted that this will happen over time, over a very very long time. Considering that the global car population stands at 1.4 billion, and that EV delivery for Tesla, stands at 1 million cars in deliveries, how many Teslas (and other big EV manufacturers) do you need to deliver in order to replace the entire 1.4billion car population and specifically how many years? Global car deliveries amount to 90 million per year and by my research, it would be a challenge itself for delivery of 4 million EV in 2021, representing a mere 5% of entire car deliveries for the year and even a smaller fraction of the entire car population. The key point here is that Gasoline demand may very well decrease, but it will take a very very long period of time before it vanishes. This is not even taking into account the supply chain associated with the production of Lithium Ion and infrastructure (charging station) needed to effectively transition into a global car population consisting mainly of EV only.

At the same time, the ESG push has also forced non state owned oil majors to cut down heavily on capital expenditure. Typically, oil producers have a reserve life that can last 10 years - 15 years of production. In order to merely maintain production, the capital expenditure of oil producers need to be maintained year on year in order to sustain this. If you reduce capital expenditure by 10%, then somewhere down the road, your production or supply will come down by 10%, all else equal. As non stated owned oil majors synchronize a capex cut across the board the oil supply will face a crunch, and not even the increased investment from state owned major will be able to cover this gap, as cash is a finite resource, and state owned majors will have an obligation to plug their budget deficits that they have accrued to support their respective economy during the Covid years.

The long explanation above merely points to the fact that oil will not lose its value overnight, on the contrary based on these facts above, one can reasonably expect oil to surge in the very near future, as the SUPPLY CRUNCH WILL OUTWEIGHT THE EXPECTED DECREASE IN DEMAND. A simple question to make my point, do us Malaysians expect to see 15% of EV on the road next year? Maybe 2025? Well, Exxonmobil just cut its capital expenditure versus pre covid by 30% for two years straight. If 50% of the oil supply by oil majors cuts their capex by half then in theory, gasoline demand will decrease by 15%, which means 6 million barrels of oil demand lost. However supply theoretically decreased by 15 million. This relationship isn't perfect but it is up to you to weigh it.

Now, if what I'm predicting above comes true, tell me, do you want a piece of Hibiscus now or not?

https://www.oedigital.com/news/488146-lukoil-ceo-expects-opec-to-raise-oil-output

SC assets got jobs to secure.

Those vessels were already classified as non current asset held for sale in Q42020. As soon as they classify it, at least the depreciation expenses would have already been stopped in Q1.

Noticed something universal this quarter? With 4 consecutive quarterly profits that trumped analyst expectations, ALL analysts covering Armada has raised its TP after its results two days ago.

It is just a matter of time before this Kraken wakes up.

U can wait till tomorrow for all the analyst reports. Consensus is RM400 million + earnings. If doing a RM150 million quarterly or an implied annualized earnings of RM600 million does not warrant an upgrade, then I honestly don't know what does.

This was in the analyst reports. It mentioned that there will be various quarters in which cost will be expensed for certain items for vessel enhancement in view of a long term extension. I would say 25-30 mil a quarter minimum should be the norm for the JV earnings share.

Other income from management fee (if you treat it as once off) can be similarly offset by a decline in JV and associate earnings which was in the current quarter increased due to vessel upgrading costs pursuant to the 15 year Armada D1 extension, so let's treat it as that both effects equal each other. Furthermore there was a loss of approximately 6-8 million in earnings due to 3 days of maintenance for Kraken.

I am just going to point out, that consensus earnings is about RM450 million. However you want to look at it, with this quarterly results, the street is severely underestimating their forecasts and by tomorrow i do expect a series of upgrades, across the board.

I am jojobaa, the person who predicted that Armada will make a big time 4q profit in 2020. I was right.

Now I am here to also predict that Hibiscus will also make a big time quarterly profit for the ending march quarter to be reported in May.

Why? Very simple. If we want to simplify things we can reasonably expect Hibiscus to report a huge improvement over its 2Q2021 profit which was reported a week ago.

We first make an assumption that every quarter, all else equal, say Hibiscus makes 10 mil net profit, with 1 million barrels of oil sold. We also note the disclosure that the locked in oil price is circa USD40 which was agreed during Covid with Trafigura.

Now based on such assumptions, the full yearly profit of Hibiscus is very easily calculateable as follows:

3.2 million production per year

Oil price of A) 55 USD B) 62.5 USD C) 70USD

Based on 3.2 million production per year, and based on the USD oil price, Hibiscus's net profit is implied to be: 32 million PAT

Now we assume that Hibuscus sells the remaining 3.2 million at a range of USD55 to 70, which is the underlying oil price now. The incremental net profit shall be:

3.2 million x USD 15 (differential of oil price now and then)*0.615 (profit after tax rate)*4 (exchange rate) = RM118 million

and

3.2 million x USD 30*0.615 (profit after tax rate)*4 (exchange rate) = RM236 million

This brings a incremental net profit after tax of between RM118 million to RM236 million

To sum up, if you think Hibiscus can sell its 3.2 million barrels of oil at USD55 per barrel, a fair assumption is that Hibiscus's PAT shall be RM118 million + 32 million = RM150 million

If you think Hibiscus can sell its 3.2 million barrels of oil at USD70 per barrel, a fair assumption is that Hibiscus's PAT shall be RM236 million + RM32 million = RM278 million.

According to Hibiscus's latest quarterly report, the locked in oil price with Trafigura in Q2 has been fulfilled and one can assume that Hibiscus will lock in significantly higher price for its cargoes moving forward. Hibiscus should also be the stock which has the highest postive relation with oil prices moving on an uptrend.

I am jojobaa, the person who predicted that Armada will make a big time 4q profit in 2020. I was right.

Now I am here to also predict that Hibiscus will also make a big time quarterly profit for the ending march quarter to be reported in May.

Why? Very simple. If we want to simplify things we can reasonably expect Hibiscus to report a huge improvement over its 2Q2021 profit which was reported a week ago.

We first make an assumption that every quarter, all else equal, say Hibiscus makes 10 mil net profit, with 1 million barrels of oil sold. We also note the disclosure that the locked in oil price is circa USD40 which was agreed during Covid with Trafigura.

Now based on such assumptions, the full yearly profit of Hibiscus is very easily calculateable as follows:

3.2 million production per year

Oil price of A) 55 USD B) 62.5 USD C) 70USD

Based on 3.2 million production per year, and based on the USD oil price, Hibiscus's net profit is implied to be: 32 million PAT

Now we assume that Hibuscus sells the remaining 3.2 million at a range of USD55 to 70, which is the underlying oil price now. The incremental net profit shall be:

3.2 million x USD 15 (differential of oil price now and then)*0.615 (profit after tax rate)*4 (exchange rate) = RM118 million

and

3.2 million x USD 30*0.615 (profit after tax rate)*4 (exchange rate) = RM236 million

This brings a incremental net profit after tax of between RM118 million to RM236 million

To sum up, if you think Hibiscus can sell its 3.2 million barrels of oil at USD55 per barrel, a fair assumption is that Hibiscus's PAT shall be RM118 million + 32 million = RM150 million

If you think Hibiscus can sell its 3.2 million barrels of oil at USD70 per barrel, a fair assumption is that Hibiscus's PAT shall be RM236 million + RM32 million = RM278 million.

According to Hibiscus's latest quarterly report, the locked in oil price with Trafigura in Q2 has been fulfilled and one can assume that Hibiscus will lock in significantly higher price for its cargoes moving forward. Hibiscus should also be the stock which has the highest postive relation with oil prices moving on an uptrend.

Let Jojobaa explain that the difference in FGV's share price of RM1.17 and the potential MGO price of RM1.30 represents a risk arbitrage trade PROVIDED one assumption is fulfilled.

Felda's purchase of shares agreement from Urusharta and KWAP is premised upon bank's support for proof of funds for both the proposed acquisition of shares and the ensuing proposed MGO. The MGO has become unconditional as Felda would have crossed 50%+1 share of FGV with the purchase of the shares, thereby becoming the controlling shareholder. Shareholders are free to choose to accept, or decline the RM1.30 offer but as long as Felda obtain a letter of support for financing for the MGO, shareholders are guaranteed a payout of at least RM1.30 if they accept Felda's MGO.

Now the only thought that investors have to process is, is Felda going to obtain the support of financial institutions. If not, what will FGV's share price fall to if they fail to obtain that? Jojobaa thinks that while it is not a perfect risk arbitrage at RM1.17, Jojobaa thinks that there is limited downside should the proposals fall through due to CPO price nearing a 5 time high, and good 12% upside at RM1.17, in a timeline of 3-4 months.

Yinson is trading at 12x FY2021 PE, Armada is trading at 5x FY2020 PE. As Armada inevitably posts another profitable quarter in 4Q2020, one has to wonder, is it just a matter of time before the valuation gap between Armada and Yinson narrows. Food for thought.

Dear Nikicheong,

Jojobaa has done extensive research on Armada and he knows that Kraken is 100% owned.

But look at the share of associate results for the past 3 quarters on Armada. It has only broken even whereas according to the annual report analysis of segmental breakdown, Armada should be able to make 100 mil from its share a year. Why has it not been reporting positive profits. Channel check reveals that there are deferred tax liabilities arising from temporary differences of the carrying value of the asset against its base, and these are non cash liabilities but will eat into the P&L. 4Q should see it returning to the black as the tax liabilities stops being included in the P&L statement.

I do not wish to reply Mikecyc cause he's just spamming whatever he reads but Jojobaa can't stand people who forms their perception based on selected information so here goes a rebuttal:

Haha Kraken with RM 4.6 billion contract but made impairment RM 1.6 billion oredi ... schedule maintenance fund is used up ... each schedule maintenance will incurr 20 million ? 30 million or more Loss

Jojobaa's analysis:
Impairments are done relative to investments made, it is not an operating loss per se, but rather a loss relative to the investments made. A company should be valued based on its future prospect, rather than its past investments. Impairments are done so the future cash flow of Kraken should be valued, not the impairments. In fact, impairments will boost up future profits via savings of depreciation of 1.6 billion during its life span.

Impairments are done based on a set of DCF calculations, which has assumptions bearing cash flow, contracts, extensions and oil prices. If circumstances change with relevance to this, or if present conditions are worse off than management's and auditor's expectations, then impairments can happen. Even Exxon impair billions, but again it is with respect to past investments made, not future cash flow, thereby a NON CASH FLOW EXPENSE.

>> EIA forecasts monthly Brent spot prices will average $42/b during the fourth quarter of 2020 and will rise to an average of $47/b in 2021 .

Jojobaa's analysis:
According to the annual report and press releases, Armada CEO has said that FPSO business is relatively immune to oil prices. I wrote something about this above, maybe you should read it. The only way oil can affect FPSO business is if the oil prices are sustained at below cash flow break even for a PROLONGED period of time. Hope you understand that oil prices only affect the sentiment and future potential project decisions but not necessarily the results that Armada is running day to day.

Haha Kraken first oil in 2018 .. Huge Loss .... 2019 sold FPSO Perdana , result only with little Profit , if not will be in more than 200 million Loss .... 2020 still in Loss ..

On the contrary, Kraken is a lucrative profitable FPSO with over 650 million ringgit in revenue a year. It is the second most important FPSO for Armada after Armada Olombendo. Whatever Enquest produces is theirs to make or lose, Armada's obligation under the charter is merely to maintain the uptime, not on how much oil it produces. Look at the annual report and results and you will see that the uptime of Kraken has been near flawless for the last 3 quarters, despite Covid.

So to Mikecyc, it is no coincidence that Armada has surged after 2 quarters of consecutive results. You can continue to spam hate messages on a well run company but come back 3 months later post 4Q results release, and maybe we can have another talk then where you continue to bash Armada while shareholders continue to enjoy the upside.

https://www.enquest.com/fileadmin/content/press_release_pdfs/2020/Operations_Update_vF.pdf

@Mikecyc

Dear sir, my name is jojobaa, not jojobee.

It could have been a week, could have been ten days. In any case, the most important thing is that there is no planned maintenance for Kraken in the 4Q and therefore, I am optimistic with the JV returning to the back and with Kraken back to normal . In my opinion, if we assume 99.9% uptime on Kraken, and JV returning to the black with a RM25 million quarter profit, I predict that Armada will report a core net profit of RM120-RM125 million after accounting for seasonally weaker OSV utilization during the monsoon season. If Armada is trading at 37.5 cents at 85 mil net profit, I wonder what will Armada trade at when my prediction of RM120-125 million is nearly correct.

Jojobaa Jojobaa's latest analysis:

3Q Results:

Positives:
1) Second quarterly profit if RM85 million despite Kraken maintenance downtime for a week (about RM15 million loss of revenue and therefore profit as Armada have to incur expenses during downtime)
2) Another 230 million of debt pared down, bring 9M2020 debt paredown to a whooping RM750 million
3) Steady performance for the FPSO division with the exception of Kraken downtime, which was planned
4) There is an increase of RM13 million in asset held for sale, which means more idle OSV assets are earmarked for sale. This is a good sign as depreciation and operating costs in relation to cold stacking those OSVs can be reduced.

Negatives:
1) Armada issued a force majuere due to construction difficulty during the lockdown for its 30% JV in India. However, force majuere contracts are fairly common in agreements relating to extraordinary events such as natural disaster or in this case COVID that hinders Armada's ability to fulfill its contract obligations (such FPSO construction is fairly complex process). I do not expect a material impact as the force majuere clauses should protect Armada from penalties or claims from OGNC. The only things that moved from this is the timeline
2) No signs of the RM600 million short term loan to be repaid in this quarter. In this regard, I believe banks will allow Armada to stretch its repayment schedule as Armada is generating healthy cash flow and Armada has to pare down its project financing before channeling the funds to paying its unsecured lenders.

Having said that, I believe Q42020 would be a strong quarter premised upon
1) Kraken returning to 99.9% uptime after the planned maintenace
2) JV and associate returning to the black of roughly RM100 million per annum
3) Sale of the OSV asset under point 4) above; and

In my opinion, Armada will report a very strong Q4, most definitely above Q3 and very likely above Q2 results.

Some people are spooked with Maybank IB's valuation. First we have to understand that Maybank has written off approximately RM10 billion of its extension orderbook. This is a very drastic assumption. The recent extension of Armada TGT1 and Armada D1 has shown that not only will clients extend, they are even extending for longer durations (in the case of Armada D1) as oil field may still be producing robustly. Imagine if you just write off RM10 billion off a company's books. I don't see him doing the same on Yinson's orderbook.

Furthermore, Maybank has put a value of zero on the values of its OMS division. This is also not a fair assumption as its OMS division is still EBITDA positive. If an asset is EBITDA positive, it is still generating cash for its owner. The losses relates to the losses relative to the investment made on the assets but Armada has also been selling its OMS assets at gains (meaning sales price exceed book value).

Maybank has essentially valued Armada as if it is not cash flow positive, in financial distress and is at risk to declare bankrupty. I can assure you if you look at the cash flow statement, Armada has kitchen sunk most if not all its legacy investments and is a healthy company generating enough cash flow to pay off its debts and generate earnings for its shareholders.

CEO said FPSO is immune to oil price. Why? Because before they commit to a project they screen through the profile of clients and primarily the breakeven cost of oil prices. At USD40, most of its clients are still generating positive EBITDA and profit, with breakeven at USD15 and 27 respectively for Enquest, so no oil price will not pose a serious risk to its FPSO business under current conditions. An oil field is drilled after forecasting for 10 or more years and therefore its clients will continue to drill as long as it is generating positive cash flow. Termination of oil field will leave operators cripple as they cannot produce oil clients has to be severely financially distressed to take this step.

Jojobaa's analysis as follows posted on 15 October 2020 on this forum:

Armada's days of impairments are over, the 300 mil on the OMS is the last one.

With Armada D1 being extended, the next expiry of charter from firmed period is only coming in 2024. Debts are being paid down from its EBITDA of RM1 billion. Debts only increased because USD had appreciated to USD4.40 as at 1st quarter and USD4.28 as at 2nd quarter. RM1.5 billion has been paid, translating to debt paring down of RM250 million a quarter. Enquest, its customer for Kraken has breakeven field of USD10-15 bucks, so they are still above water, and unless oil price plunge below USD10 for prolonged period of time, chances of them terminating is close to zero.

OMS is loss making, but still EBITDA positive. I read somewhere that Armada Constructor and Installer has assumed no jobs till 2022, so any further impairments before then is slim.

Armada will probably make around RM300-400 million a year here onwards. Management is doing the right thing, paring down debt aggressively and maintaining operational consistency.

I am leaning towards AmInvestment and Hong Leong's target price of RM0.50-RM0.60. Over next few quarters, once it makes 2 consecutive quarters of RM80-100 million profit, Koon Yew Yin's followers will buy as it is trading at 5x and meets his golden rule. Debt is not a problem as they are generating substantial EBITDA. Interest rate reduction of 2% also saves Armada RM50 million in interest cost a year.

By the way Armada C7 got extended, for another 8 years firm period, so don't quite understand what you mean there were zero new contracts from Petronas and oil majors in Malaysia. None of Armada's FPSO operates in Malaysia.

Upupshare, Armada's FPSO clients are Eni, Husky, Oil and Gas National Oil Company, Enquest, and Hong Loang Joint Operating Co. They have 0 FPSOs with Petronas, sir.

Dear Mr TAK1, for the past 2 years, if you read the annual report, they have disposed off close to 20 OMS vessels, and now they have only circa 35 vessels remaining.

Again, if you read the financial statements, you would have also seen that the OMS division is EBITDA positive, meaning segment results still exceed depreciation charges, so I guess if you look at it objectively, you can bash the OMS for its poor performance. From my point of view, Armada is progressing well IN SPITE OF the annual maintenance cost scrapyard waiting whatever that you just said.

Last but not least, there is also skepticism with regards for Armada to repay in excess of RM600 million over next 12 months (under current liabilities). Some analysts have reiterated that Armada needs to sell its OMS assets to pay this sum. In my view, selling the OMS assets is only a supplementary action to pay off its debts. Armada is generating RM1 billion per year after interest costs and that will be more than enough to pay RM600 million over the next 12 months.

Some people are spooked with Maybank's valuation. First we have to understand that Maybank has written off approximately RM10 billion of its extension orderbook. This is a very drastic assumption. The recent extension of Armada TGT1 and Armada D1 has shown that not only will clients extend, they are even extending for longer durations (in the case of Armada D1) as oil field may still be producing robustly. Imagine if you just write off RM10 billion off a company's books. I don't see him doing the same on Yinson's orderbook.

Furthermore, Maybank has put a value of zero on the values of its OMS division. This is also not a fair assumption as its OMS division is still EBITDA positive. If an asset is EBITDA positive, it is still generating cash for its owner. The losses relates to the losses relative to the investment made on the assets but Armada has also been selling its OMS assets at gains (meaning sales price exceed book value).

Maybank has essentially valued Armada as if it is not cash flow positive, in financial distress and is at risk to declare bankrupty. I can assure you if you look at the cash flow statement, Armada has kitchen sunk most if not all its legacy investments and is a healthy company generating enough cash flow to pay off its debts and generate earnings for its shareholders.

CEO said FPSO is immune to oil price. Why? Because before they commit to a project they screen through the profile of clients and primarily the breakeven cost of oil prices. At USD40, most of its clients are still generating positive EBITDA and profit, with breakeven at USD15 and 27 respectively for Enquest, so no oil price will not pose a serious risk to its FPSO business under current conditions. An oil field is drilled after forecasting for 10 or more years and therefore its clients will continue to drill as long as it is generating positive cash flow. Termination of oil field will leave operators cripple as they cannot produce oil clients has to be severely financially distressed to take this step.

GOGOOGOGOGOG!

Long live glove stocks. To the death of property!