Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 3 Dec 2020, 8:42 AM


Yinson Holdings Bhd - Uncertainty with Parque das Baleias

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The Parque das Baleias FPSO project by Petrobras is reportedly going for a rebidding, with commencement delayed a year to 2024. As such, this throws YINSON’s status in the project into uncertainty, as the company was the only sole bidder for the project. We place the stock UNDER REVIEW (from OUTPERFORM and SoP-TP of RM7.10), pending an analysts’ briefing. The project currently contributes to RM1.60/share in our SoP valuations, and thus, removing the project entirely would result in a hypothetical floor fair value of RM5.50.

Parque das Baleias going for rebidding. News outlet Upstream reported that the floating, production, storage and offloading (FPSO) vessel for Petrobras’ Parque das Baleias complex in the Campos basin may be going for a rebidding process, in light of the current economic difficulties due to the Covid-19 pandemic. Additionally, first oil for the project is also reported to be pushed back a year to 2024.

Project not a priority for Petrobras. Since the plunge in oil prices this year, the project had lost its priority status within Petrobras. Additionally, it was also reported back in August 2020 that the Parque das Baleias fields had observed a reduction in gas export curves – something that was not expected when the company launched the original tenders nearly a year and a half ago. As such, we believe all these factors combined may have impacted the projected commercial returns, prompting Petrobras to reconceptualise the project. Nonetheless, the project is not expected to be terminated entirely as Petrobras had already committed to the revitalisation of the fields.

What are YINSON’s chances in the rebidding? To recap, in the original tender, YINSON emerged as the project’s sole and lowest bidder after the disqualification of the only other bidding competition – a partnership between Dutch contractor Bluewater and Italy’s Saipem, due to financial difficulties. Since then, YINSON has been in exclusive negotiations with Petrobras for over a year, but the project has still yet to materialise nonetheless. That said, bidding competition for the project has been proven to be relatively tepid, and as such, the upcoming rebidding process may not necessarily yield a drastically different result, although lower charter rates are highly likely.

Call and TP UNDER REVIEW (from OUTPERFORM and SoP-TP of RM7.10), pending further management guidance via an analysts’ briefing on Monday (19 Oct 2020). That said, it is almost certain that our TP will be lowered post-briefing. Currently, the Parque das Baleias FPSO contributes ~RM1.60/share to our SoP valuations. And hence, removing the project entirely will result in a hypothetical floor fair value of RM5.50.

Risks to our call include: (i) project execution risk, (ii) weaker-than- expected margins, (iii) termination of contracts, and (iv) force majeure events.

Source: Kenanga Research - 19 Oct 2020

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