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 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 although Yinson has secured the charter extension for its 49%-owned floating production, storage and offloading (FPSO) vessel PTSC Lam Son for 6 firm months starting 1 July 2021 with an option for extension for another 6 months until 31 Dec 2021.

• The 1-year charter extension value of US$18mil (RM75mil) represents a 41% reduction from the first 4-year extension of US$123mil over multiple addendums from 1 July 2017 to 30 June 2021.

• Recall that the original charter for PTSC Lam Son, with a storage capacity of 350,000 barrels and operating at PTSC’s Thang Long–Dong Do fields, Block 1-2/97, offshore Vietnam since June 2014, expired on 30 June 2017. PTSC has been undertaking the operation and maintenance of the FPSO with a majority 51% equity stake since the completion of the vessel conversion.

• As the group had made some impairments in 4QFY21 for the vessel, which had already completed its original charter, we understand that its depreciation would be halving to US$10mil annually. Hence, this should almost wholly offset the lower charter revenue going forward, translating to a largely unchanged associate contribution of RM15mil annually from the Lam Son charter.

• We are positive on this development as without the charter extension, Yinson’s FY23F net profit could be slightly lowered by 2%. Additionally, management views that the Lam Son charter will likely be renewed beyond FY23F as production prospects have substantively brightened in tandem with crude oil prices rising above US$70/barrel currently.

• Meanwhile, 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 ESGsupported 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), which translates to a robust 13x FY22F revenue.

Source: AmInvest Research - 2 Jul 2021