Investment Highlights

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

• Following the memorandum of understanding entered back in April last year, Yinson has now signed a letter of agreement for Sumitomo Corp to participate in at least 20% effective interest in a floating production storage and offloading (FPSO) vessel, if the joint venture successfully secures the tender, to be deployed in the Marlim oil field in Brazil. However, we understand from the analyst briefing last week that Sumitomo may be taking up to 30% equity interest.

• Under this collaboration, Yinson will be managing the project implementation while Sumitomo handles the logistics and financing arrangements, which could enable the joint venture partners to enhance competitive bids against rival Modec – another Japan-based engineering, procurement, construction and installation provider that also charters FPSOs.

• Recall that Yinson is currently bidding for Petrobras’ Marlim I and Marlim II FPSOs, in which Modec appears to be the leading contender. Yinson is also expected to bid on 1 March this year for an FPSO for the integrated development of Brazil’s Parque das Baleias (Parque) project. These three projects have negligible local content requirement.

• Besides Brazil, Yinson is also tendering against Modec, SBM Offshore and Bumi Armada to supply an FPSO potentially costing over US$1.1bil for Aker Energy’s Pecan field in the Deepwater Tano Cape Three Points block off Ghana. Aker has a 50% effective stake in the project with Lukoil 38%, Fueltrade (2%) and Ghana National Petroleum Corp (10%).

• Assuming a capex of US$1.5bil, similar to Bumi Armada’s Olombendo FPSO, project IRR of 11%, WACC of 7.7%, equity stake of 70% and debt-to-equity financing ratio of 80:20%, we estimate that a single win for any one of these four FPSOs could enhance Yinson’s SOP by RM1.27/share and contribute earnings of RM140mil – 36% of FY21F EPS.

• With the completion of FPSO Helang by the end of this year, Yinson’s project management team is comfortable securing two large projects this year. Given its comfortable FY20F net debt-toEBITDA of 3x, we do not foresee the need for any equity-raising exercise.

• Yinson’s creative charter arrangement, recently executed, to supply First E&P with an FPSO for the Anyala & Madu fields under Oil Mining Leases 83 & 85 off Nigeria is expected to be replicated in other tenders such as in Papua New Guinea which the group is currently exploring. For this Nigerian project, recall that the FPSO conversion cost will be paid by the principal as a prepayment of the charter lease.

• Underpinned with locked-in earnings visibility from an outstanding order book of US$4.3bil (25x FY18F revenue), the stock currently trades at a bargain FY21F PE of 13x vs. over 20x for Dialog Group.

Source: AmInvest Research - 4 Mar 2019