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ARMADA (5210)  : Armada ... Price Keep Falling, Anymore Hope !!! 


It has yet to finalise the execution of the USD1.18 billion contract to supply one FPSO vessel to HCML after several delays. The contract will be terminated should both parties fail to sign by Nov 272014 unless another extension is agreed upon.

The further delay in the execution of the contract does not paint a positive picture of Armada, whose order book is currently (Nov 2014) at rm31.7 billion.

Hit by declining oil prices till 13 Nov 2014, and the untimely listing in Oct 2014 of its rights shares, its share price has fallen by 43% YTD.

It has a rm18.5 billion in long term FPSO, T&I businesses as well as a strong footing in the Caspian Sea T&I market.

T&I should be anchored by recurring work orders from Petronas and Russia’s Lukoil.

The FPSO segment is its earnings driver, making up 85% of its order book and contributing 60% of its 2015 earnings.

The drop in oil price has had no impact on the group’s existing contracts as they are long term in nature, with pre agreed chartering fees.

Expect the FPSO contracts to provide the group with stable earnings stream up to 2018, regardless of oil price movements.

Weak oil price may prompt oil companies to cut spending on exploration drilling and the development of higher cost projects, expect the impact of FPSO market to be muted, as FPSO is a proven technology for oilfield development.

The company has six FPSO contracts in Africa and Brazil.

Armada Installer will continue to anchor earnings for Bumi’s T&I segment.

Unlike FPSO and T&I businesses, expect the group’s OSV segment especially AHS fleet, to suffer from lower oil prices.

It is looking to dispose seven vessels and redeploy some vessels to the Brazil and Africa markets.

It has yet to secure any contracts for its OFS division. There will be additional setback for Bumi’s OFS segment as oil companies are re evaluating their capex plans due to lower oil prices

The company has cash of rm9 billion proceeds from the group’s rights issue in Aug 2014. The rm50 million in net interest savings should more than offset lower OSV and OFS earnings.

Armada’s share base has increased 100% following the listing of the bonus and rights shares.

The group is a proxy for the global FPSO and Caspian Sea T&I markets. These markets segments are relatively insulated from the current (Nov 2014) oil price weakness.

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