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 forecasts are maintained as Yinson’s 9MFY19 core net profit of RM249mil (excluding impairments) came in within our expectations but above consensus, accounting for 87% of our FY19F earnings and 97% of street’s vs. 74%–80% for the past 3 comparative periods. The group did not declare any interim dividend as expected.

• We expect a softer 4QFY19 as the group benefited from a stronger USD in 3QFY19. Our FY19F–FY20F earnings project a decline of 17%–24% due to the full impact of the JAK minority charge together with the expected cessation of the floating production, storage and offloading (FPSO) vessel Knock Allan in April 2019. However, Yinson’s FY21F net profit is expected to stage a rebound from the maiden contributions of FPSO Helang as well as Anyala-Madu, notwithstanding protracted contract negotiations.

• Excluding provisions of impairments for the group’s whollyowned FPSO vessel Knock Allan, which will have its charter terminated 3 months earlier on 31 January 2019 by Canadian National Resources, together with Yinson’s 4 offshore support vessels, Yinson’s 3QFY19 core net profit rose 28% QoQ to RM129mil, driven mainly by the stronger USD vs. the ringgit.

• On a YoY comparison, Yinson’s core net profit slid 5% mainly due to the termination of the group’s 49%-owned Lam Son FPSO charter. The vessel is still being deployed in the field on an interim charter until 31 December 2018, and is likely to be extended pending the completion of contract negotiations.

• The group remains optimistic of securing another US$1bil FPSO early next year with multiple rollouts of projects in Brazil, West Africa and Gulf of Mexico (See Exhibit 4) amidst a limited pool of contenders with the necessary expertise and financial capability following project scarcities over the past 3 years. The more immediate bid submissions next year could be the Marlim 1 & II and Parque das Baleias projects in Brazil.

• Given its low FY20F net debt-to-EBITDA of 3x which should enable the group to easily secure external project financing, we do not expect any equity raising exercise. With the completion of the 2 Suezmax-sized FPSOs by the end of next year, Yinson’s project management team is comfortable securing another large project towards early 2019.

• Underpinned with locked-in earnings visibility from an outstanding order book of US$4.1bil (25x FY18F revenue), the stock currently trades at a bargain FY19F PE of 16x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 21 Dec 2018