Investment Highlights

• We maintain our forecasts and 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.

• Upstream reported that Yinson is one of three confirmed bidders for Petrobras’ 2 floating production, storage and offloading (FPSO) vessel charters for the Marlim project to revitalise the ageing Campos basin development.

• The other bidders are Japan-based Modec and Teekay OffshoreOcyan partnership. The partnership between Norway-based Bluewater and Italy’s Saipem did not submit a proposal as earlier speculated.

• The Marlim I FPSO will produce 80,000 barrels per day (bpd) of oil — equal to Bumi Armada’s US$1.5bil Olombendo vessel in Angola. The Marlim 1 will also produce 7mil cubic metres per day (cmd) of natural gas. The slightly smaller Marlim II FPSO will handle 70,000 bpd and 4 million cmd. Both vessels will be chartered for 25 years and should enter production in 2022 and 2023, respectively.

• Petrobras divided the tender in 3 packages — Lot A specifically for Marlim I, Lot B for Marlim II, while Lot C offers the option to submit a single offer for both units. Modec submitted bids for all 3 packages, while Teekay and Yinson each presented offers for lots A and B.

• Petrobras has 2 other ongoing tenders for FPSOs on the market. Bids are expected on 14 February 2019 for a second large Mero FPSO, in which Yinson is unlikely to be involved. However, Yinson is expected to bid on 1 March this year for the FPSO for the integrated development of the Parque das Baleias (Parque), which has negligible local content requirement.

• Assuming a capex of US$1.5bil similar to Armada Olombendo, project IRR of 11%, WACC of 7.7% and a debt-to-equity financing ratio of 80:20%, we estimate that a single win for any one of the 3 projects - Marlim 1, Marlim II or Parque FPSOs - could enhance Yinson’s SOP by 33% or RM1.81/share and contribute earnings of RM200mil – 59% of FY21F EPS.

• With the completion of FPSO Helang by the end of this year, Yinson’s project management team is comfortable securing a large project towards early 2019. Given its comfortable FY20F net debtto-EBITDA of 3x, we do not foresee the need for any equity-raising exercise for the group’s prospective maiden charter in Brazil.

• Yinson’s savvy partnership with the Sumitomo Corporation, which is part of a Japanese consortium (also including K Line, JGC Corporation and Development Bank of Japan Inc) with a 26% equity stake in the JAK FPSO in Ghana, supports wide external project financing capability for a large floater.

• 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 - 28 Jan 2019