ARMADA’s 1QFY25 CNP of RM183.5m (-13.7% qoq, -27.1% yoy) missed our expectations due to lower-than-expected revenue from vessels recognised under finance lease accounting, where income typically decline over time as lease receivable amortise.
Looking ahead, earnings are expected to decline QoQ in 2QFY25, as the Kraken FPSO enters the optional extension period of its charter, which carries a significantly lower day rate.
We have revised our assumptions for finance lease income and the day rate for Kraken FPSO lower, hence cutting our FY25/FY26/FY27 earnings forecasts by 35.7%/47.0%/51.0% respectively.
We have shifted our valuation methodology to SOP framework based on DCF valuation of individual vessels to better reflect ARMADA’s asset-level fundamentals. Following this change, we revise our target price downwards to RM0.67 (from RM0.76), based on SOP valuation and appraised with a three-star ESG rating.
Below Expectations. ARMADA’s 1QFY25 core net profit (CNP) of RM183.5m came in below our expectations but was within consensus estimates, accounting for 19% of our full-year forecast and 27% of the street’s. The earnings shortfall was mainly due to lower-than-expected revenue from vessels recognised under finance lease accounting, where income typically decline over time as lease receivable amortise. Nevertheless, operational performance remained strong, with average vessel uptime exceeding 99%.
QoQ. Excluding exceptional items such as net forex losses (+RM0.6m), and other adjustments (+RM0.2m), 1QFY25 CNP dropped 13.7% qoq, broadly in line with the 11.1% decline in revenue. The revenue decline was primarily due to the recognition of compensation payable to charterer of Kraken FPSO (c.RM5m) in 1QFY25 following confirmation of second annual charter extension to 1 Apr 2027 and the absence of one-off revenue from maintenance work carried out on Olombendo FPSO in 4QFY24 (c.RM17m). Notably, the compensation to charterer of Kraken FPSO relates to a penalty for non-critical outstanding items, where the cost of rectification exceeds the penalty imposed, hence the commercial decision not to undertake repairs.
YoY. 1QFY25 CNP plunged 27.1% yoy in line with the 25.4% decline in revenue due to recognition of compensation payable to charterer of Kraken FPSO in 1QFY25 mentioned above and the absence of lumpy O&M revenue from Olombendo FPSO recognised in 1QFY24.
Outlook. With a much healthier balance sheet (net gearing of 0.3x) and the potential share-based merger between ARMADA and MISC, we believe ARMADA is now better positioned to access financing for new FPSO projects, an area where the Group has faced challenges in recent years. Meanwhile, 3D seismic acquisition for the Akia Production Sharing Contract (PSC) commenced in April 2025. In addition, ARMADA recently announced that the Group has secured a PSC for the Kojo block in the Makassar Strait, Indonesia. We understand that the strategic rationale behind venturing into PSCs is to eventually develop and deploy FPSOs for these fields. Looking ahead, earnings are expected to decline QoQ in 2QFY25, as the Kraken FPSO enters the optional extension period of its charter, which carries a significantly lower day rate (approximately 70% lower) effective April 2025.
Earnings Revision. We have revised our assumptions lower for finance lease income and the day rate for Kraken FPSO, in line with management guidance. We also incorporated FY24 audited figures. As a result, we have cut our FY25/FY26/FY27 earnings forecasts by 35.7%/47.0%/51.0% respectively.
Valuation and Recommendation. We have shifted our valuation methodology to SOP framework based on DCF valuation of individual vessels to better reflect ARMADA’s asset-level fundamentals. Following this change, we revise our target price downwards to RM0.67 (from RM0.76), based on SOP valuation and appraised with a three-star ESG rating. Despite near term headwinds, we remain positive on ARMADA, given its significantly improved balance sheet, which positions it well to secure new FPSO projects.
Risk. Unable to secure contract extensions, contracts cancelled by clients, weaker-than-expected uptime from unexpected asset breakdowns.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.212042 | 4.248408 |
| EUR | 4.921000 | 4.929487 |
| CNY | 0.591903 | 0.592919 |
| HKD | 0.540309 | 0.544492 |
| SGD | 3.268153 | 3.293573 |