Investment Highlights

• We maintain our BUY on Yinson Holdings (Yinson) with unchanged forecasts and 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.

• As we had highlighted in our recent update, Yinson has signed a memorandum of understanding (MoU) with Brazilbased Enauta Participacoes S.A for a direct and exclusive negotiation to supply a floating production, storage and offloading (FPSO) to the Atlanta field in the Santos Basin, offshore Brazil.

• The MoU involves the adaptation of an existing FPSO, OSX2, in which Enauta already has a purchase option and engaged SBM Offshore to modify its turret. The bidding process for the other services and equipment necessary for the development is also underway.

• Recall that the recent cancellation of Petrobras' re-tender for the Parque das Baleias FPSO charter allows the group to more efficiently redeploy capital against the backdrop of securing mid-sized projects which may not require high equity outlays.

• This is because the clients may be willing to provide upfront capital payment for the vessel upgrade similar to the fasttrack arrangement for First Exploration & Petroleum Development Company Ltd's Abigail-Joseph FPSO, in which Yinson did not have to raise equity for the project.

• Pending further details from an analyst briefing later today, we estimate that this value-accretive charter, if it materialises, could add 8% or 53 sen to Yinson's SOP. This is based on a conversion cost of US$500mil conversion cost for the FPSO and a conservative project IRR of 12%.

• Additionally, Yinson also appears poised to secure another mid-sized FPSO charter with its purchase option for Woodside's Nganhurra FPSO, which has a production capacity of 100Kbpd. Yinson has offered Nganhurra for the tender of Petronas' Limbayong field, off Sabah as well as Aker's Greater Pecan field off Ghana. The capex could reach US$600mil for either one of the 2 projects.

• Yinson is competing with offers by MISC and Aker’s 62%- owned Ocean Yield for Limbayong and Pecan charters respectively. However, Ocean Yield has tendered for the Pecan project with its Dhirubai 1 FPSO, which has a smaller capacity of 60k bpd, while MISC has a purchase option on the same vessel for the Limbayong field.

• Assuming Yinson secures the Enauta and Pecan FPSO jobs, the lower capital requirements could postpone the need to undertake a rights issue. However, if the Enauta and Limbayong charters were secured, the group may need to raise equity next year since Petronas would not be amenable to provide upfront capital for the Limbayong FPSO's conversion costs. Based on its current share price, we estimate that a RM1bil rights issue at this juncture 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 its 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 current formidable outstanding order book of RM40bil (US$9.7bil) that translates to a robust 13x FY22F revenue.

Source: AmInvest Research - 27 Aug 2021