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 18x.

• Our forecasts have been marginally adjusted after taking into account lower minority charge assumptions for FY19F, which stemmed from losses from one of the group’s four offshore support vessels. Budget 2019’s removal of the RM20K Labuan tax ceiling will not result in higher tax rates for Yinson as its overseas operations are mainly domiciled in Singapore and Marshall Islands, which are wholly tax-exempted for charter income.

• Our FY20F earnings project a decline of 17% due to the charter expiry of the floating production, storage and offloading (FPSO) vessel Knock Allan by the end of this month, 3 months earlier than originally contracted, together with the full-year impact of minority charge from the sale of a 26% equity stake from the US$1bil FPSO John Agyekum Kufuor in June 2018 to a Japanese consortium.

• We expect 4QFY19 earnings to be flat QoQ, but decline in 1QFY20 due to the loss of Knock Allan’s annual earnings of RM40mil. However, this could be partly mitigated by earlier-than-expected contributions from the US$400mil FPSO Helang (formerly Layang) in 4QFY20.

• We understand that the conversion of FPSO Helang, carried out in Cosco’s Qidong shipyard in China, is expected to be completed in August this year, with contribution potentially by September in the currently producing fields, earlier than its contractual obligations by December 2019. We expect the charter commencement of FPSOs operating in the Helang fields of Sarawak and Anyala & Madu off Nigeria to stage a 43% rebound in FY21F earnings.

• Nevertheless, we understand the caution on the Anyala and Madu charter, which has yet to be officially awarded as negotiations with First Exploration and Production Development Ltd (FEP) for financial guarantees have yet to be resolved, while the option for Modec’s vessel has expired last month. Amid Knock Allan’s idle status by the end of this month, the group remains confident of sourcing for alternative vessels.

• Even if the Nigerian contract fails to materialise, the group remains optimistic of securing a massive FPSO this year as one of the leading contenders for Marlim 1 & II and Parque das Baleias projects in Brazil, notwithstanding other bidders such as Modec, Teekay Offshore Partners and Bluewater-Saipem JV. The capex for these vessels, with production capacities of over 100,000 barrels per day, could easily exceed US$1bil, above EMA’s estimates of US$700mil-US$1bil.

• Given its gross cash of RM1bil and low FY20F net debt-to-EBITDA of 2.1x, we do not expect any equity-raising exercise should the group secure any of these charters. With the completion of the Helang FPSO by end-2019, Yinson’s project management team is comfortable securing another large project this year.

• 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 FY21F PE of 13x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 23 Jan 2019