Investment Highlights

• We maintain 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 FY23F PE of 17x, below its 5-year average of 21x.

• Pending an analyst briefing today, we are positive on Yinson securing a letter of intent (LOI) from Petrobras to provide a mid-sized floating production, storage and offloading (FPSO) vessel for the Parque das Baleias (PDB) field in Campo de Jubarte, north of the Campos basin as indicated in our report on 28 October.

• This comes over a roller-coaster re-tendering process in which Petrobras had earlier ruled out Yinson, the only bidder, for a submission outside budget parameters in August this year. Recall that the FPSO will be converted from the 300,000mt VLCC Hawk (formerly Apollonia).

• Upstream had indicated that Yinson has agreed to a 3% discount to a flat day rate of US$624,110 from an earlier proposed US$645,750 in May this year, which was deemed too high by the Petrobras bidding committee.

• Petrobras intends to charter an FPSO over 22.5 years with a storage capacity of 1mil barrels of crude, processing capacity of 100,000 barrels per day of oil and 5mil cubic metres per day of natural gas for the development. The unit, which is expected to begin production in 4Q2024, will be connected to 17 wells.

• For the PDB charter, based on the lowered day rate, capex of US$900mil and operating costs at 15% of revenue, we estimate that its project IRR can reach a lucrative 19% vs a usual range of 12%-15% in the past.

• Separately, Yinson's MoU with Brazil-based 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. Assuming a conservative project IRR of 12%, the Enauta FPSO could add 7.5% to Yinson's current SOP.

• Together with the PDB charter, these 2 charters could substantively raise Yinson’s SOP by 22%. However, these projects are likely to spur Yinson to proceed with a RM1bil rights issue to fund its huge project pipeline. Assuming the rights at a 30% discount to market price, we estimate that Yinson’s ex-rights SOP with 3% ESG premium could increase by a milder 10% to RM7.94/share.

• Additionally, Yinson, with its purchase option for Woodside's Nganhurra FPSO, is separately competing with 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.

• Yinson is also 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. Hence, we believe the group is still well positioned to secure even more projects over the longer term given the limited number of FPSO players currently amid rising demand for such vessels globally.

• Besides the rights issuance, part of the group’s financing strategy includes the recently announced Sukuk programme of up to RM1bil to fund the equity of its multiple projects. Yinson also aims to recycle its equity investments by including strategic partners such as Sumitomo Corp upon the completion of these upcoming projects.

• The stock currently trades at a bargain FY23F PE of 14x vs. its 5-year average of 21x for a globally recognised FPSO player with a healthy balance sheet and multiple 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 - 15 Nov 2021