Investment Highlights

• We maintain our BUY recommendation 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 currently.

• Our forecasts are unchanged as Yinson’s 1QFY22 core net profit of RM116mil (net of impairment and forex) is largely within expectations, accounting for 21% of our FY22F earnings and 25% of street’s. As a comparison, Yinson’s 1Q accounted for 15%-24% of FY19-FY21 earnings.

• We highlight that our FY22F-FY23F net profit exceeds consensus by 19%-20% largely due to the lease accounting recognition of the US$1bil Anna Nery floating production, storage and offloading (FPSO) vessel’s engineering, procurement, construction, installation and commissioning (EPCIC) revenue.

• Nevertheless, the group’s 1QFY22 core net profit decreased by 15% QoQ to mainly from the slower progress recognition for Anna Nery’s EPCIC lease-based revenue. This stems from uneven stages of the FPSO completion, which is targeted by 1Q2023. Hence, 1QFY22 EPCIC revenue decreased by 22% QoQ to RM652mil.

• We expect a stronger 2QFY22 bottomline onwards as management expects EPCIC revenue to recover to 4QFY21 levels given that the Anna Nery FPSO conversion at Cosco’s China yard remains on track despite the impact of Covid-19 movement restrictions.

• On a YoY comparison, Yinson’s FY21 core net profit rose 19% from the commencement of Abigail-Joseph on 28 October 2020 together with Anna Nery’s EPCIC contribution. This was further supported by the RM35mil write-off of the Pecan FPSO bidding expense and RM41mil refinancing cost for the John Agyekum Kufuor vessel in 1QFY21.

• The group is poised to secure the re-tendered Parque das Baleias FPSO charter by October this year, while awaiting the results of the Limbayong and Pecan bids. In its plans to venture into more renewable energy projects, the group could opt to recycle capital later at lower interest costs after project completion. Hence, we remain positive on Yinson’s energy transition strategy which should garner ESG-supported premium valuations over the longer term.

• The stock currently trades at a bargain FY22F PE of only 10x for a globally recognised FPSO player with a healthy balance sheet and strong prospects of substantively expanding its already formidable outstanding order book of RM40bil (US$9.7bil) currently, which translates to a robust 13x FY22F revenue.

Source: AmInvest Research - 28 Jun 2021