ARMADA: Strategic Reset Positions for Stable Earnings, Outperform Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a core PATAMI of RM96.2 million for the second quarter of financial year 2025 (2QFY25). While this figure represents a significant decline of 47.3% quarter-on-quarter and 62.2% year-on-year, the first half of FY25 core PATAMI of RM278.8 million was broadly in line with both the investment bank’s and consensus full-year expectations at 55.7% and 48.9%, respectively. This performance indicates a strategic earnings reset, primarily due to the commencement of the option period for its Armada Kraken FPSO in April 2025, which carries a substantially lower charter rate.
Performance Review
The decrease in 2QFY25 revenue to RM407.1 million directly reflects the full-quarter impact of the approximately 70% charter rate reduction for the Armada Kraken FPSO. This decline was partially mitigated by a RM28 million one-off distribution from the trustee of a former charterer of the previously disposed Armada Perdana FPSO. Despite the lower earnings trajectory, the group demonstrated strong operational resilience, supported by high operational uptime and steady contributions from the rest of its FPSO fleet. Notably, the group generated a robust RM373.0 million in operating cash flow for 2QFY25, which enabled it to continue paring down net gearing from 0.34x to 0.28x quarter-on-quarter.
Future Outlook and Strategy
The group’s order book remains firm at RM9.1 billion, complemented by an additional RM9.2 billion in optional extensions, providing long-term revenue visibility. This strong foundation, coupled with a solid balance sheet and improved net gearing, positions the group favorably to fund its strategic initiatives. The company has already incurred RM16 million for early-stage exploration works for the Akia Production Sharing Contract (PSC) in 2QFY25 and plans a modest USD1.5 million budget for the Kojo PSC over the next 3-4 years.
Furthermore, the group possesses ample financial capacity to competitively participate in new Floating Production Storage Offloading (FPSO) bids. These projects typically involve total costs of USD0.7-1.0 billion, with upfront equity commitments ranging from USD200-300 million, underscoring the company’s strategic readiness for growth opportunities in the sector.
PublicInvest Research maintains its “Outperform” recommendation on the stock, with a DCF-derived target price of RM0.59. The investment bank views the recent weakness in the stock’s price, following the lapsed merger discussion with MISC, as overdone, reinforcing its positive outlook for the company’s long-term value.
