Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged fair value of RM7.20/share based on an ESG-adjusted sum-of-parts valuation. This reflects a premium of 3% for our ESG rating of 4 stars given that the group is currently the first oil & gas service provider to proactively invest into renewable energy, and implies an FY22F PE of 15x on par with the FBMKLCI.

• Yinson is again poised to secure the Parque das Baleias (Whale Park) floating production, storage and offoading (FPSO) charter from Petrobras’ re-tendering exercise after emerging as the sole bidder in an earlier tender with the disqualification of a consortium of Norway-based Bluewater and Saipem. Recall Petrobras’ decision following the sharp drop in crude prices last year amid the Covid-19 pandemic impact on the global economy.

• Despite showing interest earlier, floater specialists SBM Offshore, BW Offshore, Altera Infrastructure and Ocyan eventually declined to bid for the new tender exercise. Recall that this FPSO will have a processing capacity of 100,000 barrels per day of oil and 5 million cubic metres per day of natural gas. The unit, which will be moored in 1,400m of water to service fields such as Jubarte, Baleia Franca and Cachalote, will have storage capacity of 1mil barrels of crude oil.

• If awarded the contract, the conversion without any local content requirement and delivery of the vessel will take 32 months after the signing of the letter of intent, with first oil targeted by 2024. Assuming a capex of US$800mil and conservative project IRR of 12%, this could add 17% to Yinson’s current SOP. Hence, we are positive on this development even though this accretion could be largely offset if Yinson proceeds to undertake a rights issue of up to RM1bil, assuming a 30% discount to current share price.

• Meanwhile, Upstream also reported that Yinson has entered into a partnership with UK-based fabricator TechnipFMC for the design contest for Total’s FPSO, potentially with a capex of US$1bil–US$1.5bil, to be stationed in its Block 58, off Suriname. Other players could be Modec, Saipem, BW Offshore and MISC, attracted by the multi-project potential for a massive development project that could cost up to US$10bil.

• The group remains on the prowl for more FPSO projects in Brazil and Africa, as well as additional renewable energy (RE) projects in India. As it could opt to recycle RE capital later at lower interest costs post-development, we remain sanguine on Yinson’s energy transition strategy that is well ahead of its peers and should garner ESG-supported premium valuations over the longer term against Tesla’s forward PE of over 600x.

• The stock currently trades at a bargain FY22F PE of only 10x for a globally recognised FPSO player with a healthy balance sheet and a formidable outstanding order book of RM41bil (US$10bil), translating to a robust 13x FY22F revenue.

Source: AmInvest Research - 27 May 2021