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.

• Oil & gas publication Upstream reported that Petrobras has received only 2 bids from Yinson and a joint venture (JV) between the Netherlands-based Bluewater and Italy’s Saipem in a tender for the charter of a medium-sized floating production, storage and offloading (FPSO) vessel to operate in the Parque das Baleias (Parque) complex in the Campos basin.

• Yinson seems to be selecting CIMC Raffles’ shipyard in Yantai, China to undertake the conversion and integration works while the Bluewater-Saipem JV negotiates with state-owned China Merchants Group.

• In a surprise development, Modec, which has been aggressively bidding for Petrobras’ projects, did not tender for the Parque FPSO charter as the group appears to have reached its capacity limitation. Canada’s Teekay Offshore also did not make a bid after tendering for each of the 2 Marlim FPSO charters.

• Recall that Petrobras divided the earlier Marlim tender into 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.

• Modec and SBM Offshore are bidding for the Mero 2 FPSO charter, while Bumi Armada is not pursuing Brazil’s huge projects for now, a position we believe stems from its current financial uncertainties after failing to meet a Nov debt repayment deadline.

• The Parque FPSO, which will have capacity for 100,000 barrels oil per day and 5 million cubic metres of natural gas per day linked to 19 development wells, has minimal local content requirement and is scheduled to begin in 2022.

• As Yinson is currently bidding with Sumitomo Corp as a minority joint venture partner potentially up to 30% of equity for Petrobras’ Marlim I and Marlim II FPSO charters, we expect the same equity structure for Parque which will enable a more competitive bid against the Bluewater-Saipem JV.

• Besides Brazil, Yinson may also be tendering against Modec, Bumi Armada and SBM Offshore 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.

• Assuming a capex of US$1.5bil similar to Bumi Armada’s Olombendo FPSO, a project IRR of 11%, WACC of 7.7%, equity stake of 70% and a 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.

• Given its comfortable FY20F net debt-to-EBITDA of 3x, we do not foresee the need for any equity-raising exercise. With 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 - 8 Mar 2019