Investment Highlights

• We maintain our BUY recommendation on Yinson Holdings (Yinson) with a higher sum-of-parts based fair value of RM7.20 (from an earlier RM6.10), which implies a FY22F PE of 18x.

• With Yinson’s 2QFY21 results scheduled to be announced on 28 September, we remain sanguine on the group, one of the few remaining global floating, production, storage and offloading (FPSO) operators with a strong fiscal discipline following the financial crunch of the past oil down cycle and ongoing Covid-19 pandemic, leaving many other rivals in the dust.

• Notwithstanding the deferrals and cancellations of multiple oil & gas projects, Yinson is poised to secure a second huge FPSO charter for the Parque das Baleias (PDB or Whale Park) revitalisation field off Brazil. This could add RM1.65/share to our SOP to RM8.85/share, assuming a 65% equity stake in the project, capex of US$1bil and project IRR of 15%.

• Recall that Yinson is the only bidder for this project after the rejection of the bid from the Bluewater-Saipem JV, which encountered financial difficulties. While the timeline of this project remains uncertain, we understand that there is a possibility of an award by the end of this year.

• Given the group’s net debt/EBITDA of 3x, we expect the group to proceed with a rights issue upon successfully securing the PDB charter. Assuming a RM700mil rights issue to fund this substantive capex and a 50% discount to the current market price, we estimate that the theoretical ex-SOP price could drop to a still compelling and value-accretive RM7.80/share.

• Even without this new charter, the group’s earnings are set for a meteoric 76% surge, propelled by maiden contributions from the 2 newly converted FPSOs – Helang in November 2019 and the fast-tracked Abigail Joseph in July this year.

• The full-year contribution of the Abigail Joseph charter will drive FY22F earnings growth of 17%, then slightly taper off to a flattish FY23F in the absence of any new substantive charter commencement. This also assumes the renewal of the group’s 49%-owned Lam Son FPSO’s extended charter upon its expiry on June 2021.

• However, the FY23F flat earnings trajectory will be temporary as growth will surge again in FY24F earnings, escalating by 15% with the 1Q23 commencement of the group’s 65%-owned Anna Nery (Marlim 2) FPSO, the group’s maiden project in Brazil. Our assumptions incorporate the Anna Nery’s capex at US$1bil and operation & maintenance costs at 15%, which translate to a strong project IRR of 18%.

• Underpinned by a strong outstanding order book of RM42bil (US$10.3bil), which translates to 29x FY21F revenue, the stock currently trades at an attractive FY22F PE of 15x. This is at a 35% discount to its 5-year peak of 23x in February this year.

Source: AmInvest Research - 22 Sept 2020