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.

• We maintain our forecasts following the analyst briefing today. These are the salient highlights:

• The time-charter value of the floating production, storage and offloading (FPSO) to be deployed at the Atlanta field, block BS-4 in the Santos Basin for Brazil-based independent Enauta Participacoes S.A could reach US$1.6bil–US$2bil over 15 years. Enauta, which has a purchase option for the existing FPSO OSX-2 currently warm-stacked near the Karimunbesar Island in the Singapore Strait, will transfer the vessel to Yinson for modification to the field requirements with first oil targeted by 1H2024 or earlier. Recall that Yinson has just signed a memorandum of understanding with Enauta for direct and exclusive negotiation to supply the FPSO, which would be the second vessel for the group in Brazil after the larger Anna Nery.

• Depending on the current discussions, we understand that the conversion cost could range at or 15% below US$400mil, significantly below Enauta’s earlier projection of US$500mil– US$700mil, which will not have any local content requirements.

• Similar to the fast-track arrangement with First Exploration & Petroleum Development Company Ltd (FEP) for Yinson’s Abigail-Joseph FPSO which achieved first oil in October 2020, this arrangement could mean Enauta providing up to 75% of the conversion cost while Yinson internally raise the balance funds without needing any equity-raising exercise.

• Assuming a conservative capex of US$400mil and operating cost of 15% of revenue, we estimate that the charter value could deliver a lucrative project IRR of 21%–28%. Assuming an equity commitment of US$100mil, Yinson’s SOP could potentially increase by 4%–6% from this mid-size project.

• Meanwhile, Upstream reported today that Sabah International Petroleum has the edge in securing Petronas’ charter for the FPSO to be deployed at the Limbayong field, off Sabah. Recall that Yinson, MISC and Bumi Armada-MTCShapoorji Pallonji JV were bidding for this contract.

Source: AmInvest Research - 27 Aug 2021