Hong Leong Investment Bank TP RM 0.71

Kraken FPSO now operating at 90%

Yesterday, Armada announced that one of the three malfunctioned HSP transformers for the Armada Kraken FPSO has been reconditioned. We gather that the vessel’s operational performance has returned to approximately 90% of pre-shutdown levels. We are positive on this development.
Previously because of the shutdown, we have imputed a 6-months downtime for the FPSO based on a daily charter rate of approximately USD480k/day (or USD175m/year)
– which we now realise is not as severe as expected. In view of this Kraken FPSO issue likely being entirely resolved by FY23 and assuming full status quo in FY24f, we maintain our BUY recommendation on Armada with a higher TP of RM0.71 – pegged to a P/E multiple of 6x on rolled-over mid-FY24f earnings, which is at a 35% discount to its peer Yinson’s one-year forward multiple of 9x. With that, we reinstate Armada as our top pick in the sector.

NEWSBREAK
Yesterday, Armada announced that one of the three malfunctioned HSP transformers
for the Armada Kraken FPSO has been reconditioned. We gather that the vessel’s
operational performance has returned to approximately 90% of pre-shutdown levels.
HLIB’s VIEW Positive – two out of four HSP transformers are now up and running. Recall that Armada earlier announced on 21 June 2023 that its Armada Kraken FPSO has startup and was at 60% of pre-shutdown production levels – following the failure of three out of four of its critical HSP transformers previously. Now, we understand that the
said FPSO is running on two out of four HSP transformers after one of the faulty ones
has been reconditioned and the FPSO’s performance has returned to about 90% of
pre-shutdown levels. We are positive on this development.

Not as severe as initially expected. Previously because of the shutdown, we have imputed a 6-months downtime for the FPSO based on a daily charter rate of approximately USD480k/day (or USD175m/year) – which we now realise is not as severe as expected. However, we highlight that there is a good possibility that because of its current suboptimal production levels (optimal would be 95% and above), the group may not be able to rake in full bareboat charter rates until the problem gets fully resolved.


Forecast. Unchanged. We view that a downtime of 6 months is prudent enough (for additional repair and maintenance costs due to Kraken’s shutdown) given the current developments of the group. To be conservative, we make no changes to our forecasts and we now believe that there is a possibility of upside earnings risk to our FY23f net profit estimates.

Japan mkt is super bull. YTL has exposure to Japan properties...

https://www.bbc.com/news/world-europe-65845441

Ukraine war: Russia says ammonia pipeline blast may end grain deal

Urea price recovered and up 38% from low in June due to Russian ammonia pipeline was damaged...
https://www.reuters.com/world/europe/russia-says-it-will-take-1-3-months-repair-ammonia-pipeline-2023-06-07/

https://www.reuters.com/world/europe/russia-says-it-will-take-1-3-months-repair-ammonia-pipeline-2023-06-07/

WCE has a lot of cash after disposal of land. Land compensation is not big issue as everything can be settled with money.

Not only toll collection, the development surrounding the highway and leases will be growth engine too for WCE in next 50 years...

WCE is majority owned by IJM. IJM is a company with good mgt and always get things done.

Buy and hold to win big like cold eye.

i think can start betting pchem as urea is recovering and russia will be banned from suppling urea soon...

USD interest rate is peaking and will drop next year.
In recent AGM, mgt guided that retention sum around RM 80m-100m( cannot remember) as i only have small n insignificant holding of Jaks.

at current valuation of RM 2b, look like WCE is a sure win bet even at current price for a mini PLUS as cold eye once termed it

i hope voters have wisdom to vote in this state election and let Anwar govt lead for 5 years. If not happy only change in next election. Msia cannot affort to have another political uncertainties.

https://www.malaysiakini.com/news/671693

Not likely to change govt even PN and PAS who only talk religion but no care of economy win big

strong leh... any good news? Kraken back to 100% operational after 2 weeks?

Has to support Anwar govt if they can survive this state election, HSR is a go which will boost economy. Muhiddin govt cancel HSR and pay hundred of millions compound which is very "clear"....

smart investors have started to appreciate the value of WCE...

This May announcement " Indicative Principle Terms and Conditions"... can anyone in the banking explain what is it?

OTHERS TOYO VENTURES HOLDINGS BERHAD ("TVHB" OR "THE COMPANY") - UPDATE ON PROGRESS OF BOT CONTRACT AND THE GOVERNMENT GUARANTEE FOR THE INVESTMENT PROJECT OF BUILDING OF SONG HAU 2 THERMAL POWER PLANT IN VIETNAM
TOYO VENTURES HOLDINGS BERHAD

Type Announcement
Subject OTHERS
Description TOYO VENTURES HOLDINGS BERHAD ("TVHB" OR "THE COMPANY")
- UPDATE ON PROGRESS OF BOT CONTRACT AND THE GOVERNMENT GUARANTEE FOR THE INVESTMENT PROJECT OF BUILDING OF SONG HAU 2 THERMAL POWER PLANT IN VIETNAM
Further to the announcement dated 29 December 2020, 24 June 2022, 5 July 2022, 12 July 2022, 26 July 2022, 8 December 2022 and 31 March 2023 on the execution of the BOT Contract with the Ministry of Industry and Trade of the Socialist Republic of Vietnam (“MOIT”) and the Government Guarantee (“GGU”) with the Government of the Socialist Republic of Vietnam for the investment and development of “Song Hau 2 Thermal Power Plant Project” in Vietnam (“the Project”), the Board of Directors of the Company wishes to inform that Song Hau 2 Power Company Limited ("SH2PC"), a wholly-owned subsidiary of Toyo Ink Group Berhad (“TIGB”) which is in turn a wholly owned subsidiary of TVHB, had on 11 May 2023 received an Indicative Principal Terms and Conditions for the Project syndicated loan.

TVHB will make the necessary announcement on the progress of the project and once the Indicative Principal Terms and Conditions have been signed and finalized to Bursa Securities in due course.

This announcement is dated 12 May 2023.

vietnam is keen as it is facing electricity shortage esp during hot weather.
Securing financing is not easy after China Xi said stop financing...

Good start to imagine the valuation. If 124km with average 5.2 years remaining give valuation of RM 4.3billion. WCE 233km with about 30+10 years concession should give valuation of at least RM 10b (RM4.3b x 3), just my imagination.

---------------
in 2022 ALR paid the following generous amount to take over the soon to be expired highway concessions (let's omit Smart in the discussion) :
$1.19 bil for Kesas , 57.5 km concession expiring 2023(1 year left from 2022)
$2.21 bil for LDP, 40km concession expiring 2030 (8 years left from 2022)
$863 mil for Sprint ,26.5 km , concession expiring 2031/2034 (avg 10 years left)
Total sum paid for 3 highways = $4,263 mil
Total length for 3 highways = 124 km
Remaining concession live (weighted avg basis) = 5.2 years only !
(Note ; once concession expire, no toll would be collected)

Let's factor in the distance and concession remaining live into the equation :
ALR paid $4,263 mils for 124 km and for 5.2 years concession, ie $6.6 mil per km per concession year !

WCE is 233 km and remaining concession is 40+10 years (concession runs from 2013, 10 years lost!) . How much should it potentially worth ??

https://www.bloomberg.com/news/articles/2023-07-05/singapore-struggles-to-fix-power-market-after-wild-price-swings?srnd=premium-asia

privatize cannot more value as mkt alreadys give discount or poor valuation to to conglomerate. It is better for keep YTLP as listed company purely for power and power related business...

mkt very clever one... already see the earnings potential

@dragon, yes you are right. Thanks for info as i did not follow closely this EPF. Just see some comments here and there EPF are selling. Look like YTL is more powerful lately...

EPF last sold YTLP was on 30 May 2023. They have not been selling since then...

Any good news on Kraken? Resume 100% operations?
Anyway, It is a matter of time Kraken to achieve 100%. When the related news come out, price will shoot up 5% at least.

When kraken will be 100% operational? Mkt only interested in Kraken for now until it reaches 100%

all monies gone with total impairments of RM 128m over the past 4 years. No wander every year needs PP or RI and still no monies to buy additional 10% power plant. Investors should query ALP in AGM...

JAKS Financial ended: 2022: 2021: 2020: 2019
Impairment loss on:
Trade receivables RM: 5,099,410: 9,848,415: 25,862,099: 5,318,354
Other receivables RM: 18,737,258: 13,461,525: 45,331,965: 7,188,995

Wow, Jaks total impairments from 2019-2022 were RM 128 million per Sslee letter above

buy and hold to win big

YTL Power International

An overreaction to the TPC
■ Singapore’s Energy Market Authority (EMA) will implement a temporary price cap (TPC) to curb excessive volatility in wholesale electricity prices.

■ We expect this new price cap mechanism to have minimal impact on Power Seraya’s earnings, given the bulk of its volumes enjoy largely fixed margins.

■ Recent sell-off is an opportunity to accumulate, in our view. Maintain Add. EMA steps in to temper extreme price volatility

The EMA will implement a temporary price cap (TPC) to curb excessive volatility in the Uniform Singapore Energy Price (USEP). Effective 1 Jul 2023, prices will be capped at a
multiplier of 1.5-3x (depending on prevailing gas spreads) [Fig 1] to the long-run marginal cost (LRMC) of generation. Also, the EMA will be extending the vesting contracts for a further five years to 30 Jun 2028, following its expiry at the end of this month.

Sensitivity analysis suggests minimal impact

To demonstrate the potential impact on USEP from the imposition of TPC, EMA carried
out simulations assuming the TPC had been in place during two time periods:
1) Jan 2021-Sep 2022 – covering the market situation before and during the global energy crisis, and
2) Oct 2022-Apr 2023 – to capture the normalisation of gas prices in recent months. The
impact on average USEP prices during these periods worked out to be 8.1% and 3.2%,
respectively (Figs 2 & 3). Between FY20-22, Power Seraya sold about 80% of its electricity
sales volumes to the retail market (Fig 4). In general, these volumes are typically locked in via 6- to 24-month contracts at largely fixed prices and earn relatively fixed margins, as
we understand the company hedges its gas prices accordingly upon signing the contracts.

The balance 20% is sold under the vesting contract scheme and wholesale pool (no
disclosure on the split between the two). The former garners relatively fixed margins as the vesting price (sales price) is set by taking into consideration the LRMC with reasonable returns embedded for the generators. Assuming: 1) a 50:50 split for the balance volumes, and 2) a more aggressive 8-16% resultant impact on USEP prices, we estimate a potential earnings loss of S$24m-48m for Power Seraya upon implementation of the TPC (Fig 5).

That said, we have factored in a much larger normalisation in earnings in the coming
quarters on the back of our initial expectations of a notable pullback in margins. However, going by the current favourable volume mix, these appear to be holding up well.

Knee-jerk reaction offers good opportunity to accumulate

We view the recent 8% sell-off on YTLP shares following the TPC announcement as
overdone. We think valuations at 8.4x FY24F P/E (a 33% discount to its 10-year mean of
12.5x) and 0.6x P/BV do not fully capture the earnings prospects from Singapore’s
tightening electricity supply market amid recurring outages given the ageing power assets, as well as the potential upside from plans for cross boarder RE exports in the region over the medium term. Downside risks include capacity outages impacting volume sales and earnings drag from non-core operations. Rerating catalysts are better-than-expected quarterly earnings and higher dividend payouts.

Kenanga Research

Kraken Back In Action

ARMADA revealed that FPSO Kraken had finally achieved start-up
after a recent shut-in. As such, production is now currently
running at circa 60% of pre-shutdown levels. We are positive on
the swift, albeit only partial restoration of Kraken’s production. We
believe this will largely alleviate concerns of a major financial
impact. We cut our FY23F earnings by 9% and our TP to RM0.62
(from RM0.75) but maintain our OUTPERFORM rating.
Kraken finally revived operations. ARMADA revealed that FPSO
Kraken had finally achieved start-up after a recent shut-in. As such,
production is now currently running at circa 60% of pre-shutdown levels.
Nevertheless, ARMADA will conduct further testing and investigations
to fully restore the vessel’s operational performance.
Recall that on 2 June, ARMADA reported that FPSO Kraken had
experienced a production shut-in due to equipment failure. The reduced
level of production for Kraken implies a reduction in bare boat charter
(BBC) revenue. To recap, Kraken was first deployed at the North Sea
by client, Enquest in Jun 2017. However, it did not receive full BBC
rates from Enquest until 1QCY20, when it finally reached the threshold
for minimal operational uptime.
Swift restoration is commendable. We are positive on the swift, albeit
only partial restoration of Kraken’s production. We believe this will
largely alleviate concerns of a major financial impact on ARMADA.
However, some concerns may linger, clouding investor sentiment until
Kraken’s operations finally normalize. They include: (i) prolonged delay
until operations fully stabilizes, (ii) possibility that the “material” financial
impact may turn out larger-than-expected, (iii) hefty repair and
maintenance costs may not be fully covered by insurance, and (iv)
Enquest may impose penalties or requires reimbursement from
ARMADA. Nevertheless, we commend the company for quickly
restoring operations to more than half of its full capacity. This is in less
than a month since the first shut-in announcement.
We estimate that the shut-in may impact earnings albeit benign as
reflected by a 9% cut to our FY23F earnings. This is based on our
assumption that Kraken receives 60% BBC from Enquest for three
months in Jun-Aug CY23.
Incorporating loss of BBC into our forecasts. As detailed above, we
cut our FY23F earnings by 9% to account for Kraken’s shut-in.
Additionally, given that Kraken’s risk profile is now escalated, we raise
our beta assumption for the vessel’s DCF valuation. This is to account
for increased risk of unplanned outages if the equipment failure
relapses or cascades.
As a result of the above, our Sum-of-Parts TP on ARMADA is cut to
RM0.62 (from RM0.75). Our valuation also 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) continued traction in efforts to deleverage
its balance sheet (current net gearing: 0.8x), (ii) long-term earnings
visibility from sizeable orderbook in excess of RM20b (including
potential extensions), and (iii) it being the front runner for an USD1b
EPCC contract for FPSO Cameia. Maintain OUTPERFORM

For price to go up further, perhaps have to wait for further announcement when they bring the vessel back to fully operational performance...

Meanwhile it is time to accumulate as it is matter of time for Kraken to achieve fully operational performance

Partial Operations for Armada Kraken

Bumi Armada (BAB) announced that production levels are now at ~60% of preshut down level for the Armada Kraken Floating Production Storage Offloading
(FPSO) vessel, a significant and much-welcomed development. We are on this as
it has far exceeded from our conservative target under a worst-case scenario
assumption of a 3-month total shut down. However, it still has further work to do,
on testing and investigations to stabilize and bring the vessel back to fullyoperational performance. We remain cautious on the near financial impact until it
reaches stable operations, post-completion of all on-going testing and
investigations. As such, we make no changes to our earnings assumption for now.
On a separate development, BAB signed a non-binding Memorandum of
Understanding (MoU) with Navigator Holdings Ltd to form a JV, Bluestreak CO2
Joint Venture. This could be its first foray into floating carbon storage and injection
unit if it materialises. Long-term prospects of the Group remain intact with strong
cash reserves and balance sheet. We maintain our Outperform rating with an
unchanged TP RM0.70.

§ Some relief. We believe the recent sell-down since the Armada Kraken
shutdown announcement is overdone after RM1.3bn in market capitalisation
was lost at the lowest share price. This is unjustified in our opinion given that
the value equates to almost 2 years’ worth of revenue contribution from the
FPSO. The announcement on partial operations is a relief to the market and
will support sentiment until the FPSO reaches stable operational levels.
Despite this positive surprise, we remain cautious on its operational stability
until the completion of all testing and investigations.

§ First foray into floating carbon storage and injection. Separately, BAB
signed a non-binding MoU with Navigator Holdings Ltd, a listed entity in
NYSE, operator and owner of the world’s largest fleet of handy-size liquefield
gas carriers. The purpose of the MoU is to form a JV, Bluestreak CO2 Joint
Venture with the aim to design and implement a value chain of shuttle tankers
delivering to a floating carbon storage injection unit in the UK. This is in line
with the UK’s Industrial Decarbonisation Strategy with potential market of over
30MT of CO2 per annum. It expects the first shipment of CO2 will take place
three years after making the final investment decision if it reaches a deal with
on-going discussions. A long-term benefit to BAB, this will help diversify its
portfolio in addition to improving its ESG rating among developed countries
and financiers, which will enable BAB to secure more contracts of this nature,
and access to capital.

Public Invest

Kraken comeback – but still not optimal

Yesterday, Armada announced that it has signed a non-binding MoU with Navigator Holdings to establish a 50:50 JV to venture into carbon capture initiatives. If successful, the first shipment of CO2 is anticipated by the parties to take place three years after taking the FID – which also means that there will be no near-term earnings impact from this development. Also, the group also announced that its Armada Kraken FPSO has recently start-up and is currently at 60% of pre-shutdown production levels. Previously because of the shutdown, we have imputed a 6-months downtime for the FPSO – which we believe is prudent enough. To be conservative, we make no change to our forecasts but we now believe that there is upside earnings risk to our FY23f estimate. We upgrade Armada to BUY – with an unchanged TP of RM0.54 – pegged to a P/E multiple of 6x on FY23f earnings, which is at a 40% discount to its peer Yinson’s one-year forward multiple of 9.5x

Impact on Kraken was not as severe as expected. Armada announced that its heavyweight Armada Kraken FPSO has recently start-up and is currently at 60% of pre-shutdown production levels – which is not as severe as initially expected.

Previously because of the shutdown, we have imputed a 6-months downtime for the
FPSO based on a daily charter rate of approximately USD480k/day (or USD175m/year). However, we highlight that there is a good possibility that because of its current suboptimal production levels (optimal would be 95% and above), the group may not be able to rake in full bareboat charter rates until the problem gets resolved.

Hong Leong Investment

2 announcements today both good news. Hope it can go back to pre-shut in valuation...

Yeah, tomo many IBs will call buy as current price very cheap and uncertainty removed. More projects will be announced in near future.

as expected, people chasing up...expect to open at 46.5 or higher

armada is a good growth stock which is not easy to find in KLSE. Hope they don't screw up things again...Business is expanding fast. The main risk is mgt not so good...

price will shoot up after mkt open due to good news of Kraken?

Once they achieve mkt cap of RM 1.5b, potential entry to MSCI. More funds will buy...

For sure, YTLP can make more than RM 2b this year. IF PE 10, will give them mkt cap of RM 20b. Current mkt cap is less than RM 10b. This stock has potential to achieve 100% return in next few months.

deal could only finalise after state election, i think. Needs to get approval from many levels including minister, LTAT etc

explosive earning can be expected in coming quarter as UK also turnaround... Both SGD and Pound also strengthen against RM...

Keppel share price also dropped 5% today. Don't know also affected by sentiment...

The Bloomberg article's already mentioned they have find best way to address this issue of high price which two years ago led to the bankruptcy of few players...

The regulator has been consulting with industry players and utilities on the best way to mitigate the jumps, which two years ago led to the bankruptcy of a slew of independent retailers. The volatility has also made utilities reluctant to invest in more generation capacity that would alleviate shortages, according to the EMA.

@dragon, Good points. Bloomberg news also report EMA will engage with stakeholders of utilities players for engagement. Hope they can raise these points. They should appoint you as advisor...😄

overact...mkt has yet to price in Jordan power plant and data centre profit.
At current price certainly only price in normal profit from Power Seraya, but not extra ordinary profit last few months due to hot weather.

this news was yesterday afternoon news. Govt only controls retail mkt and impact to power producers like YTLP are minimal...

Good or bad news?

Singapore to End 3,000% Power Price Spikes That Sank Companies

(Bloomberg) -- Singapore plans to more aggressively regulate electricity markets as price jumps intensify, again threatening to hurt the retailers that sell it to businesses and households.

Most Read from Bloomberg




Ermotti Suggests ‘Massive Downsizing’ Might Come to Credit Suisse’s Investment Bank

The Energy Market Authority will cap wholesale power prices from July 1 using a formula tied to natural gas and generation costs, it said in a document on its website. That comes after they jumped as much as 3,000% this year despite sharp drops in the cost of liquefied natural gas, the nation’s main fuel.

The regulator has been consulting with industry players and utilities on the best way to mitigate the jumps, which two years ago led to the bankruptcy of a slew of independent retailers. The volatility has also made utilities reluctant to invest in more generation capacity that would alleviate shortages, according to the EMA.

Last month, prices reached as high as S$3,594 ($2,685) a megawatt-hour in daily trading after a power plant at Jurong Island shut for a turbine upgrade amid unusually hot weather. Meanwhile, the cost of LNG has fallen 86% since March 2022.

Singapore intends to launch a request for project proposals in the second half of this year, and has said it may step in to build the capacity itself.

Most Read from Bloomberg Businessweek

Since the announcement of the FPSO Armada Kraken
shut-in, BAB has lost RM1.1bn in market capitalisation. This is approximately 2
years’ worth of revenue contribution estimates from the FPSO. Although further
updates are still pending from the management, we believe its financial impact
is contained. BAB has fully repaid Kraken’s project finance debt and is able to
absorb the financial impact given its strong cash reserve of RM678m with net
gearing ratio of 0.82x.

Sell down overdone. Maintain TP 0.70. Public Investment