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 as Yinson’s 1HFY22 core net profit of RM234mil (net of forex) is largely within expectations, accounting for 42% of our FY22F earnings and 50% of street’s.

• As a comparison, Yinson’s 1H accounted for 37%–48% of FY19–FY21 earnings. The group also declared a 1HFY21 dividend of 4 sen (flat YoY) as expected.

• We highlight that our FY22F–FY23F net profit currently exceeds consensus by 20%–26% 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 1HFY22 core net profit slid 2% YoY from a higher minority charge arising from the 74%-owned John Agyekum Kufuor FPSO’s loan refinancing charges.

• Yinson’s 1HFY21 EBIT rose 37% YoY to RM564mil in tandem with a revenue growth of 53% to RM2bil, driven largely by the Anna Nery FPSO’s EPCIC progress, targeted for completion by 1Q2023.

• On a QoQ comparison, Yinson’s 2QFY22 core net profit increased slightly by 2% to RM118mil from higher Anna Nery’s EPCIC contribution together with a 4.5x JV increase from the expense write-back of its 49%-owned JAK operation & maintenance operation.

• Yinson’s memorandum of understanding (MoU) with Brazilbased Enauta Participacoes S.A for a direct and exclusive negotiation to supply an FPSO is expected to reach a firm contract by January next year, with potential conversion costs of up to US$500mil to the Atlanta field in the Santos Basin, offshore Brazil.

• With Yinson’s purchase option for Woodside's Nganhurra FPSO, the group is separately competing with offers by MISC and Aker’s 62%-owned Ocean Yield for Limbayong and Pecan FPSO charters respectively. For the Pecan project, the charterer, Ghana National Petroleum Corporation, may be willing to partly finance the FPSO conversion costs.

• Assuming Yinson secures the Enauta and Pecan FPSO jobs, the lower capital requirements could postpone the need to undertake a rights issue. Hence, securing these 2 FPSOs could directly raise Yinson’s SOP by 14% to RM8.24/share. However, the Limbayong FPSO conversion terms do not have Enauta's upfront payment structure. Hence, if the Enauta and Limbayong charters were secured, the group may need to raise equity in the second half of next year. At the current share price, we estimate that a RM1bil rights issue with a 30% discount to largely fund the Enauta and Limbayong FPSOs could dilute Yinson’s diluted SOP by 2% or 16 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 Block 20/21, Angola and Block 58, Suriname. Hence, we believe 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.

• The stock currently trades at a bargain FY23F 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 - 24 Sept 2021