Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based (SOP) fair value of RM6.10/share, which implies an FY21F PE of 16x.

• Our forecasts are largely maintained as Yinson’s FY19 core net profit of RM281mil (excluding impairments and minority interests) came in within our expectations but above consensus. The group declared a lower than expected final dividend of 2 sen that brings FY19 DPS to 6 sen – 4 sen YoY drop from 10 sen in FY18, which benefited from the sale of a 26% minority stake in the floating production, storage and offloading (FPSO) vessel John Agyekum Kufuor (JAK) to a Japanese consortium.

• Our FY20F earnings project a decline of 8% due to the full-year impact of the JAK minority charge together with the expected cessation of the FPSO vessel Knock Allan in April 2019. This will be partly cushioned by maiden contributions from the new FPSOs Helang and Abigail-Joseph (Knock Allan renamed for the Anyala-Madu field off Nigeria) by 4QFY20.

• Going forward, Yinson’s FY21F net profit is expected to stage a rebound from the full-year contributions of these 2 FPSO charters. We introduce a flattish FY22F earnings for now in the absence of any confirmed fresh FPSO charters.

• Excluding a RM39mil reversal of earlier provisions of impairments for the group’s wholly-owned FPSO vessel Knock Allan, which had its charter terminated 3 months earlier on 31 January 2019 by Canadian National Resources, partially offset by further provisions arising from the implementation of MFRS 9 for Financial Instruments, Yinson’s 4QFY19 core net profit declined 27% QoQ to RM60mil mainly from forex loss and higher year-end operation and maintenance costs for FPSO JAK.

• On a YoY comparison, Yinson’s FY19 core net profit slid 14% mainly due to the termination of the group’s 49%-owned Lam Son FPSO charter and the maiden minority charges from the FPSO JAK.

• Yinson is currently confirmed as only 1 of 2 bidders for the 3 huge Petrobras’ FPSO charters - Marlim I, Marlim II and Parque das Baleias projects. 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, 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 substantively enhance Yinson’s SOP further by RM1.27/share and contribute earnings of RM140mil – 34% of FY21F EPS.

• Underpinned with locked-in earnings visibility from an outstanding order book of US$4.9bil (19x FY20F revenue), the stock currently trades at an undeserved FY21F PE of 13x vs. over 20x for Dialog Group.

Source: AmInvest Research - 28 Mar 2019