Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a lower post-rights sum-of-parts fair value of RM3.61/share (from RM7.20/share previously) after taking into account of the enlarged share base and proceeds from the RM1.2bil rights issue. This also reflects a premium of 3% for our ESG rating of 4 stars given that the group is the first oil & gas service provider to invest in renewable energy assets proactively.

• Yinson secured a 12-month bareboat charter contract extension starting from 1 July 2022 for its 49%-owned floating production storage and offloading (FPSO) PTSC Lam Son. The extension comes with a contract value of US$18.1mil (RM79.8mil), equal to the 1-year contract extension secured back in June 2021.

• We retain FY23–24F core net profits (CNP) which we already factored in the charter contract extension against the backdrop of rising global demand prospects amid heightened crude oil prices of consistently above US$100/barrel currently. Overall, we are neutral on the extension award as Yinson’s FY23F CNP would be slightly lower by 1% without PTSC Lam Son’s earnings contribution.

• Recall that the original charter for PTSC Lam Son, with a storage capacity of 350,000 barrels and operating at PTSC’s Thang Long-Dong Do fields, Block 1-2/97, offshore Vietnam since June 2014, has been renewed annually since expiry on 30 June 2017. PTSC has been jointly undertaking the operation and maintenance of the FPSO with a majority 51% equity stake since the completion of the vessel conversion.

• Meanwhile, the group is aggressively bidding for up to 7 new FPSO projects, including Eni’s deep-water Agogo block in Angola, Total’s Cameia field in Angola and Maka in Suriname and BP’s Block 31 SE-PAJ in Angola. Of these, we note that the low-hanging fruit could be the Agogo project, which would likely be awarded by 2HCY2022.

• We gather that the Agogo project is expected to entail an estimated capex size of US$1–1.5bil and a 20-year charter period. According to Upstream, active bidders for the project include Yinson, Bumi Armada, as well as Italy’s Saipem. MISC will likely be involved in a consortium with Saipem to jointly bid for the project.

• We reckon that Yinson could participate in at least 1–2 new projects without over-stretching its balance sheet, backed by its sturdier war chest post-rights issue and client’s provision of upfront payments to fund the project’s massive initial outlay.

• Moreover, we continue to foresee a robust FPSO market due to a strong pipeline of potential project awards over the coming quarters. Hence, Yinson’s prospects remain promising even if it fails to secure the Agogo project. While still under evaluation, the group’s strategic review in listing its FPSO business in Oslo could unlock the segment’s stable recurring revenue and provide additional funds for its promising renewable energy and green tech investments, further entrenching the company’s strong ESG credentials.

• The stock currently trades at a compelling FY23F PE of 13x vs. its 5-year average of 22x for a globally recognised FPSO player with a healthy balance sheet and multiple prospects of substantively expanding its already formidable outstanding order book of RM67bil (US$15.3bil) as of 31 March 2022, which translates to a robust 17x FY23F revenue.

Source: AmInvest Research - 4 Jul 2022