Investment Highlights

• We maintain our BUY call on Yinson Holdings (Yinson) with a higher sum-of-parts-based (SOP) fair value of RM6.10/share (from an earlier RM5.90/share), which implies an FY21F PE of 17x.

• Our higher valuation stems from the extremely lucrative charter arrangement which Yinson has secured for the bareboat charter and operations & maintenance (O&M) contract from First E&P for a floating, production, storage and offloading vessel (FPSO). This FPSO, to be named Abigail-Joseph, will be deployed to Anyala & madu fields under Oil Mining Leases 83 & 85, off Nigeria.

• The bareboat charter and O&M contract accounts for 68% and 32% respectively of the total contract value amounting to US$902mil (RM6.7bil), vs. the industry’s 10%–25% due to relatively small capex involved.

• The primary term of 7 years plus a 2-year extension option and 6 additional annual renewals could mean a total tenure of up to 15 years. While the heads of terms was signed in June last year, a definitive agreement was delayed by the principal securing an adequate security for the charter payments given that First E&P is a Nigeria-based independent operator.

• Yinson’s existing Knock Allan, which has a current book value of US$80mil and was idle by last month from the Olowi field off Gabon, will be refurbished by a yet-to-be-selected yard on a fast track by November this year.

• Instead of a bank guarantee, the principal will be paying directly for the US$120mil modification costs of the vessel as a prepayment of the charter revenue, which will be progressively offset over the 7 firm years. As such, we are impressed by management’s commendable arrangement which does not bear any significant risk from a charter termination nor incur any new capex for the vessel, which has already been fully paid by its earlier charter with Canadian Natural Resources.

• Based on a WACC of 6.5%, opex at 20% of revenue and just the 7 firm years of the initial charter, which we estimate is 13% higher than the subsequent extension options, we have raised the DCF accretion to RM1bil — 40% higher than our earlier assumption premised on a capex of RM350mil. Including all the option extensions could raise the DCF accretion further by 2.3x to RM1.7bil or 66 sen.

• As Yinson will not require any new investment cost nor capex for this FPSO, equity and project IRR computations are inapplicable. 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 debt-to-EBITDA of 3x, we do not foresee the need for any equity-raising exercise even if Yinson was to secure a huge FPSO charter from its Brazilian tenders.

• Underpinned with locked-in earnings visibility from an outstanding order book of US$4.3bil (25x FY18F revenue) and a savvy management team, the stock currently trades at a bargain FY21F PE of 11x vs. over 30x for Dialog Group.

Source: AmInvest Research - 1 Mar 2019