Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based (SOP) fair value of RM5.53/share, which implies an FY21F PE of 14x.

• Our earnings forecasts are largely maintained except for a marginal 1% reduction for FY20F due to the 3-month loss in operation and maintenance (O&M) services of the floating production, storage and offloading (FPSO) vessel charter of Knock Allan.

• Yinson has received a notice from Canadian National Resources Ltd (CNR) to terminate its FPSO contract for Knock Allan, which requires CNR to compensate the group for the 3-month loss in bareboat charter.

• The termination will be effective on the demobilisation date, estimated to be 31 January 2019, 3 months earlier than the original contract expiry. Only the O&M portion of the contract during the 3 months will not be covered in Yinson’s foregone revenue claims.

• Recall that this 10-year charter with the fixed primary period from 1 May 2009 to 30 April 2019 was originally secured under Fred Olsen, which was subsequently acquired by Yinson in December 2013.

• This development is not a surprise as management had earlier forewarned for years that the Knock Allen charter termination was a strong likelihood as the underperforming Olowi field off Gabon in West Africa was not producing anywhere near the vessel’s daily capacity of 35,000 barrels.

• We understand that the vessel, which still has some residual value left, may still be redeployed to other projects which are up for bidding. Hence, there may not be any need for impairment provision for the remaining book value as Yinson will be using the vessel to bid for projects in Malaysia, Indonesia and Africa.

• Against the backdrop of the rising momentum of global project rollouts, Yinson remains hopeful of securing at least another FPSO potentially costing US$1bil over the next 12 months given the multiple developments in Brazil, West Africa and Mexico amidst a limited pool of contenders with the necessary track record and financial capability following the severe industry downturn over the past 3 years.

• These prospective FPSO projects include the Amoca field off the Gulf of Mexico, the Parque das Baleia, Marlim 1 and Marlim II projects in Brazil and the Deepwater Tano-Cape Three Points (DT-CTP) block off Ghana.

• With a comfortable net debt/EBITDA of 2x which precludes any immediate equity raising exercise, the stock currently trades at a bargain FY19F PE of 18x vs. over 20x for Dialog Group, MMHE and Sapura Energy.

Source: AmInvest Research - 9 Oct 2018