Investment Highlights

• We maintain our BUY recommendation on Yinson Holdings (Yinson) with an unchanged sum-of-parts based fair value of RM7.20/share, which implies a FY22F PE of 18x.

• While our fair value is unchanged, we have raised FY21F– FY23F earnings by 13%–17% largely due to the accelerated profit recognition from the charter of Petrobras’ floating production, storage and offloading (FPSO) vessel Anna Nery (formerly known as Marlim 2). This stems from the progressive recognition of engineering, procurement, construction, installation and commissioning (EPCIC) profit until project completion under the finance lease accounting adoption. This is unlike Yinson’s operating lease treatment for the John Agyekum Kufour (JAK) FPSO in Ghana and Knock Adoon in Nigeria.

• The group may also be recognising a lumpy one-off EPCIC profit for the Abigail–Joseph FPSO in 3QFY21, as the fully completed vessel has been on a standby charter rate since July this year until it achieves first oil (likely next month) at the Anyala & Madu fields in Block OML 83 & 85, off Nigeria. However, this could be offset by the US$20mil loss of deposit for the aborted acquisition of Singapore-based Ezion Ltd.

• Yinson’s 1HFY21 core net profit of RM243mil (excluding impairments, forex and RM20mil one-off compensation gain for the commencement delay of Abigail–Joseph FPSO) came in above expectations, accounting for 65%–66% of our and consensus’ FY21F earnings vs. only 46%–47% in the previous 2 years. The group declared an interim dividend 4 sen, unchanged YoY and within our expectations.

• Yinson’s 2QFY21 core net profit rose 29% QoQ to RM137mil mainly from the surprising contribution of Anna Nery’s maiden EPCIC earnings given that the charter contract was only signed in March this year.

• On a YoY comparison, Yinson’s 1HFY21 core net profit surged 2.4x from the commencement of FPSO Helang in November last year together with Anna Nery’s EPCIC contribution, partly offset by loan refinancing costs for JAK in April this year and RM42mil contract acquisition cost.

• Meanwhile, Yinson is still poised to secure a second huge FPSO charter for the Parque das Baleias (PDB or Whale Park) revitalisation field off Brazil as the only bidder. 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%.

• 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 40% discount to the current market price, we estimate that the theoretical ex-SOP price could drop to a still compelling and valueaccretive RM7.80/share.

• Underpinned by a strong outstanding order book of RM42bil (US$10.3bil), which translates to 16x FY21F revenue, the stock currently trades at an attractive FY22F PE of 13x. This is at a 43% discount to its 5-year peak of 23x in February this year.

Source: AmInvest Research - 29 Sept 2020