ARMADA’s 1QFY24 results met expectations. Its 1QFY24 core net profit was flattish as improved showing from FPSO Olembendo (higher rates) and FPSO Kraken (improved uptime) was negated by start-up costs from Sterling 5. We maintain our forecasts, TP of RM0.58 and MARKET PERFORM call.

Its 1QFY24 core net profit of RM196.8m (excluding RM10.2m unrealised forex loss and RM53m gain from the revision of charter FPSO Olembendo attributable to FY23) met expectations at 25% of both our full-year forecast and the full-year consensus estimate. No dividend was declared in the quarter as expected.

YoY, its revenue surged 17% underpinned by higher revenue from FPSO Olembendo post an upward rate revision (back in late-FY23) and higher FPSO Kraken contribution due to better vessel availability. However, its core profit was flattish as JV contribution weakened due to start-up costs from Sterling 5 (which is still pending the final acceptance by the client.

QoQ, its top line remained flat with stable contributions from FPSO Kraken and FPSO Olembendo. However, its core net profit declined by 12% as higher operating cost offset the turnaround of joint ventures.

Forecasts. Maintained.

Outlook. On April 25, FPSO Kraken will transition to an extension contract as its firm charter with Enquest concludes, resulting in a lower recurring earnings base from this asset. FPSO Sterling 5 is still awaiting the final acceptance from the client, so the asset remains on a standby rate, which is lower than the full contract rate. Its RM1.5b sukuk maturing in Sep 2024 will likely to be refinanced with an USD400m facility of which the rate is yet to be determined.

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 2).

Investment case. We like ARMADA drawn by its: (i) better net gearing position, (ii) long-term earnings visibility from sizeable order book in excess of RM20b (including potential extensions), and (iii) potential for long-term growth on the back of multiple potential FPSO and LNG opportunities. 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 - 31 May 2024