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.

• Following a briefing with management today, we maintain our forecasts. These are the salient highlights:
   
  • The recent cancellation of Petrobras’ re-tender for the Parque das Baleias floating production, storage and offloading (FPSO) charter could be positive for Yinson. This allows the group to redeploy capital more efficiently against the backdrop of a high probability of securing future midsized projects which may not require high equity outlays.
    
    This is because clients may be willing to provide upfront capital payment for the vessel upgrade similar to the arrangement with First Exploration & Petroleum Development Company Ltd’s Abigail-Joseph FPSO, in which Yinson did not have to raise equity for the project.
     
  • Independent Enauta could be awarding a charter for the OSX-2 FPSO, which has a capacity of 100K bpd, to be deployed at the Atlanta Phase 2 deepwater field off Brazil over the next month. Enauta already has a 12-month purchase option for the vessel with SBM Offshore engaged to adapt its turret.
     
  • Yinson, BW Offshore, Alterra Infrastructure, Bluewater and Ocyan are aiming to secure the charter for the vessel with first oil targeted in 2024. The US$500mil–US$700mil conversion cost of the vessel could be largely supported by upfront payments.
     
  • Notwithstanding other bidders, Yinson could have a strong chance securing Enauta’s charter given that the group has a good, fast conversion track record for the Abigail-Joseph and Helang FPSOs. Additionally, Yinson had earlier secured OSX-1, an FPSO with similar specifications, for Repsol’s Ca Rong Do FPSO charter, which was eventually aborted under a prolonged force majeure event.
     
  • Yinson currently has a purchase option for Woodside’s Nganhurra FPSO, which has a production capacity of 100K bpd, and offered it for the tender of Petronas’ Limbayong field, off Sabah and Aker’s Greater Pecan field off Ghana. The capex could reach US$600mil for either one of these 2 projects.
     
  • Yinson is competing with offers by MISC and Aker’s 62%-owned Ocean Yield for Limbayong and Pecan charters respectively. Similar to Yinson’s Nganhurra vessel, Ocean Yield has tendered for the Pecan project with its Dhirubhai 1 FPSO, which has a smaller capacity of 60K bpd, while MISC also has a purchase option on the same vessel in its bid for the Limbayong field.
     
  • While Aker, the operator of the Pecan field, favours its own related FPSO Dhirubhai 1, this could change as Ghana National Petroleum Corporation (GNPC) is raising US$1.3bil to acquire a majority stake in the project to prevent further delays. Unlike Aker, GNPC may be willing to partly finance the FPSO upgrade which could defray the operator’s equity commitments.
     
  • As Sabah Petroleum and Bumi Armada-Sharpooji Paloonji-MTC JV could now be distant contenders for the Limbayong project, we believe that Yinson appears poised to secure either the Limbayong or Pecan FPSO, in addition to the Enauta charter.
     
  • Assuming Yinson secures the Enauta and Pecan FPSO jobs, the lower capital requirements could postpone the need to undertake a rights issue. However, the Limbayong FPSO conversion terms do not have Enauta’s upfront payment structure. Hence, if the Enauta and Limbayong charters are secured, the group may need to raise capital in the second half of next year. Given the share price decline of 26% over the past year, we estimate that a RM1bil rights issue at this juncture with a 30% discount could translate to a slight SOP dilution of 1% or 8 sen.
     
• Meanwhile, Yinson together with Technip Energies are undertaking pre-front-end engineering and design (FEED) services for Total Energies for two large FPSOs to be deployed in Cameia, Block 20/21, Angola and Maka, Block 58, Suriname. While separate bids will need to be later submitted for the FPSO charters, the FEED job positions Yinson onto a stronger competitive position vs. potential rivals.

• Additionally, Yinson could also be participating in Eni’s charter for a large FPSO with a production capacity of 120K barrels per day for the deepwater Agogo field, off Angola. Hence, the group is still well positioned to secure new projects over the longer term given the limited number of FPSO players currently amid rising demand for such vessels globally. We understand that the group intends to fund these future projects, if successfully secured, with bond issuances, joint ventures with partners such as Sumitomo Corp or disposals of stakes in existing FPSOs to optimise its balance sheet and maximise future earnings.

• The stock currently trades at a bargain FY22F PE of only 9x vs. a 5-year average of 21x for a globally recognised FPSO player with a healthy balance sheet and strong prospects of substantively increasing long-term contracts to its formidable outstanding order book of RM40bil (US$9.7bil) currently, translating to a robust 13x FY22F revenue.

Source: AmInvest Research - 24 Aug 2021