Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged fair value of RM7.20/share based on an ESGadjusted 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.

• We maintain our forecasts following an analyst briefing today with these salient highlights:
  • The terms of the letter of intent (LOI) for the provision of midsized floating production, storage and offloading (FPSO) vessel for the Parque das Baleias (PDB) integrated project in the Jubarte field, north of the Campos Basin, Brazil (Exhibit 3) is almost as binding as a letter of award, which could be received over the next few months.
  • As this project is unlikely to be aborted as in the case of Aker Energy’s LOI to Yinson for the deepwater Tano/Cape Three Points FPSO charter off Ghana in April last year given that crude oil prices are currently trading above US$80/barrel, the group could be proceeding with the rights issue to fund this project by the end of this year.
  • PBD’s charter value of US$5.2bil over 22.5 years will substantively raise Yinson’s outstanding order book by 54% to US$14.8bil. The charter value translates to a fixed daily rate of US$632,757, a 2% discount to Yinson’s earlier bid submission of US$645,750 and 1% higher than the US$$624,110 that was being requested by Petrobras, according to Upstream.
  • Given that first oil is targeted by 4Q2024, our forecasts are unchanged. Based on the indicative capex of US$900mil (which has reflected the recent raw material and component cost increases), operation and maintenance costs at 15% of revenue and a 70:30 debt to equity ratio with a cost of funds of 7.2%, we estimate that PDB’s project IRR could reach a highly lucrative 21% (from our earlier estimate of 19%) which could alone will raise Yinson’s SOP by 68% to RM12.3bil.
  • However, with a potentially upsided rights issue of RM1.2bil (from RM1bil to include renewable energy projects) and assuming a discount of 40% to market price, we estimate that Yinson’s e-rights SOP could rise by a milder 35% to RM9.69/share.
  • The group does not expect to significant capital requirements for Brazil-based Enauta Participacoes S.A’s FPSO for the Atlanta field in the Santos Basin, offshore Brazil, in which Yinson is in a MoU for a direct and exclusive negotiation that is expected to reach a firm contract by January next year. Assuming potential conversion costs of US$500mil to and a conservative project IRR of 12%, the Enauta FPSO could further add another 4% to Yinson's SOP to RM10.10/share.
  • While Yinson now does not appear confident of securing the Limbayong FPSO to be deployed off Sabah, the group is still eyeing an operation and maintenance charter for Aker Energy’s Pecan FPSO project in Ghana. Yinson is also interested in BP’s proposed redeployment options for an FSPO for the Palas-Astraea-Juno (PAJ) project at Block 31 off Angola.
• 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