An attractive entry level

The 29% fall in share price from the FPSO Armada Claire dispute has more than priced in the worst-case 23sen/shr impact. Should BArmada win the legal tussle against Woodside, there is a potential 18 sen upside, not factored in our forecasts yet. That issue aside, the execution of 4 FPSO/FSU projects in hand is crucial to the Group’s prospects beyond 2016. Otherwise, the OSV and T&I businesses will remain challenging up to 2017. Our MYR1.05 SOP-TP, which excludes any compensation impact from the FPSO Armada Claire debacle, offers an attractive 46% upside.

Updates on FPSO Armada Claire

The FPSO is currently off-hire, demobilised at a Batam yard. BArmada has fully settled the outstanding loans post the debacle. The court case could to take 2-24 months to conclude. An out-of-court settlement would be the best possible outcome. The best-case scenario, in our view, would be a USD263m (18sen/shr) compensation (i.e. bareboat charter and VOs) favouring BArmada. A redeployment opportunity is remote for now. An impairment drive is inevitable but a decision remains elusive.

OSV and T&I to be challenging

The operational environment remains difficult for the OSV division, which is expected to remain financially in the red up to 2017 – BArmada’s key objective will be to optimise utilisation over DCRs. Current OSV utilisation is at 47%, while cash cost utilisation is 35%. Whilst the PETRONAS and Lukoil’s T&I works will anchor the latter’s earnings up to 2018, works are scarce. 3 T&I vessels are currently stacked.

Execution of 4 jobs is key

Earnings will be weaker in 2016 vs 2015, largely due to the 9-months earnings loss from Armada Claire. BArmada’s gearing level will be at its peak in 4Q16 before trending down from 2017 as 4 ongoing FPSO/FSU works (Angola, Kraken, Madura and Malta) commence operations. A positive outcome from the FPSO Armada Claire dispute is a key re-rating catalyst, which has been totally ignored by the market, for now.

Source: Maybank Research - 20 Apr 2016