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 maintained as we have already assumed the extension of Yinson’s Adoon floating production, storage and offloading (FPSO) charter up to 2022.

• Yinson has announced that its Adoon FPSO charter has been extended for another year to 16 January 2019. Recall that the original contract for the FPSO Adoon, which operates on Block OML 123 off Nigeria, was awarded by Addax Petroleum on 17 October 2006 to Fred Olsen, which was later acquired by Yinson.

• While the contract’s firm period of 8 years expired on 16 October 2014, the agreement has an option to renew up to 8 years. The first extension was up to 16 October 2015 and thereafter for another 3 years to 16 October 2018.

• Pending conclusion of ongoing negotiations for a further substantive extension of the tenure of the contract, Addax has extended the contract on an interim basis up to 16 January 2019 based on the existing terms and conditions.

• This development is not a surprise as the OML 123 field has been producing well within the operator’s expectations over the years.

• Against the backdrop of the rising momentum of global project rollouts, the Yinson group 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 Parque das Baleia, Marlim 1 and Marlim II projects in Brazil as well as 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 - 23 Oct 2018