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.
• Upstream reported that Yinson has been selected by Total to perform preliminary front-end engineering design (pre-FEED) for 2 floating production, storage and offloading (FPSO) projects to be installed in Block 20/21 in Angola, Africa and Block 58 in Suriname, South America. The pre-FEED, the first undertaken by Yinson’s Oslo office for a fee, will provide technical and commercial lease & operate proposals to Total within 8 months from the agreement date.
• The topside design will be performed by Technip Energies, a key partner with Yinson for the pre-FEED. The Angola project will be installed at water depths of 1,400 metres, 160km from Luanda, while the Suriname project will be installed at around 2,000 metres, 150km from Paramaribo.
• Including Yinson, we understand that there are 2–3 contractors who were selected to undertake this job. This will allow Total to choose the best engineering design which could lead to the winner securing the FPSO charters involving substantive vessel capex of US$1bil–US$1.5bil each.
• As Upstream reported that the other pre-FEED providers could be Japan-based Modec and a JV between Saipem and BW Offshore, we caution that Yinson will need to provide the best FEED to be in the pole position to secure these FPSO charters.
• Even so, this positive news comes on the back of recent developments that Yinson is again poised to secure the Parque das Baleias (PDB) FPSO charter from Petrobras’ re-tendering exercise. Yinson emerged as the sole bidder in an earlier tender following the disqualification of a consortium of Norway-based Bluewater and Saipem.
• Upstream reported that the group submitted a very competitive day rate of US$645,750 for the PDB charter, comprising the bareboat charter of US$571,500 and services rate of 394,930 Brazilian reais (US$74,250).
• Recall that Yinson was already planning for a rights issue with its US$1bil Anna Nery project for Petrobras and potentially fresh renewable energy (RE) projects. If Yinson were to secure all 3 of these FPSOs, we estimate that the group will need to undertake a rights issue of up to RM2.3bil assuming 100% equity stakes with capex of US$800mil for PDB and US$1bil each for the Suriname & Angola projects.
• Assuming a conservative project IRR of 12% and 20:80 equity-to-debt financing ratio together with the dilution from issuance of rights shares at a 30% discount to its current market price, we estimate that these 3 massive projects will slightly raise Yinson’s current SOP by 10% to RM7.95/share.
• Given the energy transition’s impact on oil & gas project financing, if the equity-to-debt financing ratio is required to be higher at 30:70 for all 3 projects, Yinson’s SOP could decline by 7% instead. However, we expect the group to mitigate any potential value dilution by disposing of part of its equity stakes in the projects to other strategic shareholders such as Sumitomo Corp and Kawasaki Kisen Kaisha Ltd, which currently have equity stakes of 25% and 10% respectively in Yinson’s Anna Nery FPSO.
• Besides oil & gas projects, Yinson remains on the prowl for additional 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 - 10 Jun 2021