Yinson Holdings Bhd - 2Q20 Deemed Below Expectations

Date: 26/09/2019

Source  :  KENANGA
Stock  :  YINSON       Price Target  :  7.75      |      Price Call  :  BUY
        Last Price  :  6.45      |      Upside/Downside  :  +1.30 (20.16%)

While there were no surprises operationally during the quarter, we deem its 2Q20 results as below expectation given FPSO Abigail-Joseph’s slightly later commencement date of 1Q21, from 4Q20 as earlier projected. Nonetheless, the unexpectedly weaker YoY numbers this quarter was due to the cessation of FPSO Allan in end-FY19. Maintain OP and TP of RM7.75, with catalyst from upcoming new contract wins, as our valuations have already priced in two new wins.

Deemed slightly below expectation. 1H20 core net profit of RM102.6m (arrived after stripping-off non-core items e.g. forex, impairments etc) came in at 42%/41% of our/consensus full-year earnings forecasts. While there were no surprises operationally during the quarter, we deem this as below expectation, given a slight delay in the commencement of FPSO Abigail-Joseph to 1Q21 from 4Q20, thereby indicating slightly weaker numbers for upcoming quarters than earlier anticipated. Nonetheless, the announced dividend of 4.0 sen per share (flat YoY) is deemed to be within expectation.

Expectedly weaker set of earnings. 1H20 core earnings were 18% poorer YoY, mainly due to the cessation of FPSO Allan’s charter contract in end-FY19. The FPSO is currently undergoing conversion works, and is set to be redeployed as FPSO Abigail-Joseph at the Anyala and Madu fields, Nigeria. For 2Q20, core net profit of RM50.3m was similarly poorer YoY by 23%, due to the aforementioned cessation of FPSO Allan’s charter contract. Meanwhile, sequentially, 2Q20 fell slightly QoQ by 4%, dragged by the higher finance costs (+11%).

Contract wins in the pipelines. YINSON is reportedly close to clinching one of the two Marlim FPSO contracts in Brazil, with Modec expected to land the other one. Once materialised, this would represent YINSON’s debut into the Brazilian market. We understand that Petrobras is expected to offer a 25-year charter contract, with commencement anticipated in 2022-2023. Elsewhere, YINSON is also understood to be one of the front-runners for Aker Energy’s Pecan FPSO off Ghana (against SBM Offshore), and may also still be involved in tenders for Parque das Baleias FPSO in Brazil. Locally, YINSON (in partnership with MISC) is also reported to have submitted bid for the Limbayong FPSO. We reckon the overseas projects to roughly have a net capex size of ~USD1b, while the Limbayong FPSO could be smaller at roughly ~USD700m capex. Meanwhile, expected strong earnings growth in FY21 will be underpinned by the commencement of FPSO Helang (4Q20) and FPSO Abigail-Joseph (1Q21).

Maintain OUTPERFORM, with unchanged SoP-TP of RM7.75 – implying FY21E PER of 23x, which is at +2SD from its 5-year mean. Post-results, we trimmed our FY20-21E earnings by 12-5%, after assuming a later commencement date for FPSO Abigail-Joseph to 1Q21, from previous assumption of 4Q20. Our valuations have already priced-in two new contract wins, based on these assumptions; (i) 15% IRR, and (ii) 8% discounting rate. Nonetheless, we continue to like YINSON for its aggressive management, strong project execution and contract winning potential.

Risks to our call include: (i) project execution risk, and (ii) weaker-thanexpected margins, (iii) termination of contracts, and (iv) failure to land new contracts.

Source: Kenanga Research - 26 Sept 2019

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